How do I know if this is a good deal?

Question

Hello All,

Do any good deals really exist in Dallas-Fort Worth market? Those that are being talked about in books and seminars where a house can be bought for 50K, repaired for 20K, and apprised/sold for 100K?

I searched MLS listings and found either houses that sell for 55K in 55K neighborhoods or for 100K in 100K neighborhoods. In other words, no one sells anything good at a 20-30% discount.

Then I subscribed to a wholeselling list and got this property:
http://dfwinvestors.com/property/ridglea-hills-boaz-wholesale-available-in-fort-worth/

Is this a good deal? If the house is offered for 88K with 20K in repairs, can it really be sold for 145K? And if it indeed can, why do they not sell it themselves? Instead they leave ~30K on the table. Is there a catch?

Thanks
Nick

Bill Gulley · Answer

Nick B., welcome to BP!

Is that property you posted a good deal? I doubt it, without looking, since it's being advertised.

Look up the definition of "Market Value" or "Real Estate Market Value"
when you understand what market value is, you'll understand that any sale that is transacted that meets that definition is never purchased at a  "discount" it IS sold at it's market value.

Saying a property is purchased at a discount is really not an accurate description, but it conveys the idea of buying a distressed property at a price that was not the market value and may allow an amount of profit or equity to be had after repairs or improvements have been made. That is usually is what is meant by discount.

The fact that a property is being advertised in an open market, perhaps for a sufficient amount of time so that it is exposed to a market of potential buyers is a big step toward meeting the definition of market value. Buying properties at market value can still be a profitable deal, but generally, you really need to concentrate on even better prices for more profits.

So, what you are looking for are distressed sales, properties that are not exposed to the market. Sellers who are more motivated than as described in the definition of MV. A seller who has just gone through a divorce, is headed to foreclosure, is in poor health, is moving from the area by a certain date, in other words, sellers who must sell to avoid a greater financial loss, these seller won't meet those definitions of MV.

A distressed property, one that will not meet normal inspections or collateral requirements of lenders place the property in a distressed situation,it can't easily be sold unless repairs are made, again, such properties won't meet the definition of market value due to the lack of financing.

Another distressed situation is clouds on title, where good title can not be given. With enough money, I doubt there is a title issue that can't be cured. Another issue is when a property has a higher and better use than it's current use, while it may not be distressed, it is under utilized and is distressed from the point of view of the higher use.

So, part of what a wholesaler or investor does is solve problems. To solve any problem you must be able to identify the problem and you need to know the time, effort and money involved in curing any distressed situation. It's not always lumber, sheetrock, counter tops and fixtures.

There are many ways to find distressed sellers and properties, your job is finding them, then solving the problem, cure the problem and reap the benefits of your efforts.

Not saying your property listed can't be a decent deal, but more than likely there are better deals. Beware about buying at preceived discounts, if it meets the fair market definition, regardless of what you pay, you bought it at it's fair market value.   :)

Dean Letfus · Answer

That is a lot like asking:
"Are there any pretty girls in America?".
It all depends on what turns you on whether it is a good deal.

But seriously in terms of discount to retail prices every city and town in every country in the world has discounted deals. Because the real estate market is driven by fear and greed. You need to find the fearful people needing to sell.  I have invested in 3 countries and been able to find great deals regardless of market conditions.  You just have to turn enough stones till you find the hidden treasures.

Jerry Puckett · Answer

Hi Nick B.,
Welcome to BP! We're neighbors, and I do quite alot of work in North Richland Hills. Ushi is quite right. Deals on the MLS have dried up all over. Auctions in these parts are tough with fierce competition; mostly a Good Ole' Boys club nearly impossible to get into.

There are some reputable wholesalers, but most of them, including me, have a solid core of buyers that will buy anything we contract before the ink is dry. I haven't had to blast an email, or make more than 2 phone calls in well over a year. So if it comes to you in an email, it's most likely a dog that no one else wanted.

If you're having trouble evaluating your deals, I'm happy to assist. You will need some sort of a tool that allows you to pull and analyze sold comp data. If it's not MLS, then I highly recommend Investway.com (not affiliated in any way, just a former very satisfied user). You may want to consider doing some of your own marketing.

Ushi Hastie · Answer

Hi Nick B.

"So, where are those properties that are sold at 30% discount after repairs? "

Certainly not on the MLS, unless you have the resources to offer fabulous terms, such as being able to close with all cash, within 7 days and without many (or any) contingencies.  Not to say that there are no deals to be had on the MLS, just because a seller is asking for market value on the MLS doesn't mean they won't take less with time and circumstance.

However, the MLS is probably not where you should be looking if you are not an experienced investor with the network/resources to dispose of properties mined there.  The MLS & Craigslist is low hanging fruit with lots of competition.

You want to find people that either can not afford a realtor and/or are too ashamed to hire one because of the condition of the property.  Guerrilla marketing, with direct mail, driving for dollars and bandit signs is where it is at if you want to find deals 30% below market value. In addition to that, those deals won't just fall out of the sky, into your lap, you must become a skilled negotiator.

Last, most wholesale deals are never listed on the MLS.  They are deals with private sellers and the reason why you are not seeing the data to support that wholesaling is alive and well during your MLS browsing.  The MLS's main purpose is to list homes retail price to retail owner occupants.

~ Ushi

Nick B. · Answer

Nick Miller:

Thank you for your advice. I am new to REI and the most actionable part of what you recommend is Zillow and auctions.

Dean Letfus:

I see your point but similar properties were sold for 24K and 36K, so you offer of 27K was in line with them and was indeed market price. Somehow you managed to sell it above that price (42K) and I wonder if your buyer checked the comps before making you an offer.

In my case, I am looking for a rental, not a flip. However, I want to have at least 20% equity in the property as a safety cushion. If I could not rent it or something else goes wrong I would be able to sell quickly and at least break even.

Thanks
Nick

Nick Miller · Answer

one more thing..  Look at non-traditional structures.  I own a church building which I sub-divided into apartments and I also own a commercial building which has split residential and commercial use.  The cash flow is amazing because most investors are looking for traditional structures rather than real estate investments with amazing returns.

Nick Miller · Answer

also, go to as many real estate auctions as you can...  Auctions are either a gold mine for investors or a gold mine for sellers but if the property is advertised as "absolute" it will probably be a gold mine for the investor.

Nick Miller · Answer

Without knowing your market I am hesitant to give advise but here are some strategies that have worked for me.

One way that works in my market is to use the map view in zillow.  If you pull up a map and look for properties that are 1/2 the asking price of others in a close proximity that is normally a good lead...  My personal residence was owned by an investment group out of Texas and they did not advertise on the mls they simply listed the property on their site and it was mirrored on zillow.

If you know of professional investors simply search their name in the assessors office and find out who they bought their properties from.

Call on EVERY for sale by owner sign...  Some home owners dont know about CL so this greatly limits their market.

Research tax liens in your market and research commissioners sales.

check out government foreclosures on sites like hudhomestore and never be afraid to shoot a low bid on a property that is overpriced but has sat on the market for a long time.

Nick B. · Answer

Nick Miller: I think you're right and there are no good deals on MLS but where do you find yours?

I am also looking at Craigslist but most posts there are from flippers, wholesalers, and agents. When they write "great investment property", I have a feeling that it is priced to perfection and there is no "equity capture" at the buying time.

So, where are those properties that are sold at 30% discount after repairs?

How do I know if this is a good deal?

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