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Updated almost 8 years ago, 12/27/2016
REO: how do I negotiate
My fiance seems hell bent on sending me to chase MLS listed properties. This past weekend I got us to look at the REO he found on Zillow, of which I figured might be a deal. We went out there with a contractor who is also an inspector for 203K loan properties, exactly who we needed. The REO was horribly neglected, sitting vacant at least since 2013 or longer ... which meant it needs a lot of work, $150K worth of work to be exact. The listed price was currently for $200K, but we still wanted to get 10% bellow that.
Since I am a newbie, I had to run my numbers with everything known, and finally I spent half the day getting quotes from the various types of insiurence coverages for what I'd need to rehab it, rent half of it, and live in the other half all while fully covered. By the time I got back to my agent and he contacted the listing agent, now we're told it is under contract by someone else as of earlier today. Yet, I do not see any sign of it "pending" on any public records, and wonder if the listing agent is playing games and/or will not do business with me due to currently being a tenant who is in litigation of suing that company and my landlord. What do I do to find out if it really is under contract? I'm seriously thinking about calling the bank and just asking, but is that unwise? I do not trust the listing agent nor the company they represent, as that company has proven time and time again they are crooked, especially when it comes to property management landlording. I really think they are in the business of ruining landlords so to then make even more money off of their poorly managed properties by selling, but that's just my personal bias hunch.
Also, check out my pic of us suited up in this mold infested REO lol :-) (I'm the one throwing up a peace sign).
I have been selling Fannie Mae properties for 5 years and have purchased some properties for myself as well. If by investor friendly you mean they don't sell them for 50% of value, that's correct. But they are "investor friendly" and their properties have no more issues than any other REO seller.
mark gallagar
I wouldn't expect anything less from someone who is representing the bank.
but fnme are the worst.
starting at ridiculous high prices.
following with 30 days deed restrictions in reselling
then 90 days cannot resell for more than 120% of the purchase price. . and I can go on and on..
so by saying they are investors friendly I guess you mean they are friendly to the bank investors but definitely not to us - the real estate investors..
happy investing my friend :)
Maybe I'm a sucker, but forget that property. Who wants to wear a mold suit?!
You deserve all the money you get if you get that one under contract, rehabbed, and flipped. haha
If it were my first flip, I might try something a little easier. But, maybe that's because I can't even pick up a hammer.
I'm a Real Estate Agent in MD who does a lot of work for investors, our team has done about 30 rehab deals this year. I thought I could clear up some information for you.
1. 130k is a bit high for a rehab, most gut jobs shouldn't be more than 100k. There is no way, though, that you can get a flip in this area for 10-20k per Jasseems comment above. That may be possible for a light rehab and rental, but not a flip. Getting the kitchen to where it needs to be takes 10-20k alone.
2. Zillow and Trulia are TERRIBLE resources. Your agent should clearly be communicating more, but he is a much better resource. I'll give you an example. An investor came to me last week looking for a multi-unit property. He wanted to start by seeing three properties he found on zillow. Of the three, one was a current listing, one was off market and sold in 2012, and another was sold in 2007. How a nine year old listing was on zillow is beyond me, but their information is NOT accurate. As agents, we pay into the MLS service and all collectively share information here. There are rules for using the MLS and penalties for non-compliance. Updating a listing from "active" to "pending" is one of these penalties so he will know way before Zillow and Trulia. My guess is that the listing still shows as "active" on these sites even after its sold.
3. Dealing with REOs is its own world. Every bank is different and has their own rules. Some will consider multiple offers, some will only consider one offer, some will only consider owner-occupied offers for the first 30 days, etc. Even if you offer list price they might still reject the offer and decide to relist 20k higher to see if they can get it.
4. Deals are always out there, but the competition is steep. We often offer on properties sight-unseen to be the first offer on the table and still only get about 10% of offers accepted, so don't get attached to that one property. I'd crunch the numbers on a few more properties so you start understanding unit prices for different work. You won't have time to get contractors to bid every property so you'll have to get quick at pricing the rehab.
I'm not trying to discourage you, just want you to have truthful advise. Feel free to PM me if you have any other questions and good luck finding the right house! Its out there!
Oh! Also, moldy properties are the best! You can get the best deals on them and you're usually gutting the property anyways so remediation costs are minimal. It scares away paint and patch investors so there is less competition. Its possible that you need to watch these properties for 6+ months though as the price will gradually decrease to a reasonable level. They typically start WAY over priced to see if anyone bites.
Thank you for clearing things up, @Joshua Velte! I keep trying to explain that pricing, especially in and nearby the DMV area everything is over priced lol. People outside of the DMV don't seem to grasp that everything is three to four times more than anything should be. Also, I personally thought it would be about $103K but the contractor quoted us for $130K (I did not tell him my numbers, I wanted to see what he would tell us). Now, to be fair, he quoted us $130K to do everything on the two moldy properties that came on this acre of land, the mold remediation alone for both properties was about $30K itself ($15K for the big house, and $4k-$6K for the small house — as he was unsure the exact price since some walls in there maybe kept or maybe not depending on what they find when they start demo). It was all the other repairs, and me wanting a sump pump for both properties as well as nice kitchens (3 total) that got it all the way up to $130K to $150K. Like my attitude was since we wanted to live in one and rent the other, I wanted to pay the costs now up-front to not have to worry about anything for the next 20 years. Everything has to be redone on that house, including the roof lol. The only thing in good shape was the deck haha, that was it. Out of the four full bathrooms in the main big house, only one full bath was completed lol. It was as if the house had been worked on and a rehab crew gave up (maybe the mold started and they freaked out). Most of the mold ruined their usual work other than the bathrooms since the bathrooms were ceramic tile lol.
I think the reason why the bank hasn't gone lower than $200K is because it has two houses and the land alone is worth $108K (according to the tax assessment). It would be a dream to nab all this at $80K or even $100K, but realistically they may only take 10% less than their listing price and nothing less. Yet, what you are telling me is it might be better to just go for the listed price as they may not budge at all?
As for it now being under contract, my agent confirmed that after I crunched all my numbers by calling up my insurance, someone that Monday morning got it under contract and I was late to the game by 2pm that same day when I got my agent to put in our offer. He confirmed that it has been on the market up until that morning sometime before noon. I bet us going to see the property that Saturday set off the people waiting to buy it and they finally moved on it, as it had been on some listings for 4+ months at the lowered $200K price. Ugh, as a newbie making sure my numbers were accurate I ended up being too slow. I had hoped that since the mold was so bad, and the house was so strangely unique for this area without having apples to apples as comparables to ever be a good candidate for a flip, that even at $200K it would send any and all investors running, I guess I was wrong. Someone who knows exactly what they are doing can make $200K work, even up to $230K would work if the investor had a cheap but still quality contractor if they were going to do something other than literally flip this property. Even our Agent was surprised that it got under contract at that price in that condition with its specs, because even if it was fixed up nice it would still be a difficult sell due to its location and uniqueness. I was only willing to get it as it was going to be a live-in flip + a rental. Its uniqueness didn't bother my fiancé or I as we are eccentric artists and the secluded wooded location was perfect for us given our personal preferences about noise issues. I even spent time that morning confirming that I could in fact register two separate addresses even though it has been one address for both properties, that way I could rent the big house with less problems from my insurance. All that time I spent, making extra sure about my numbers and if I had the resources to make my plan work ended up costing me this deal. Really a bit bummed, but it taught me about REOs and now I'm combing through the HUD listings now too lol.
Anyways, everything you said makes perfect sense to me. Thank you so much for your insight in this tough and overpriced market in and around the DMV.
I only have one question regarding this scenario, pertaining to what the contractor told me: is it true that the original hardwood floors can be kept from a moldy house if they get refinished and sanded on the back side too? Does that really take care of the mold that attached to the flooring (due to the moisture issue after the mold crept up all the walls it flung itself onto every single thing in that house lol including the floors), or is it like mold on bread where the mold has roots and is all over inside even when the surface is sanded off? I have mold allergies and really need to know if this is legit, in case we come across another mold property and end up buying and rehabbing it.
Thanks again so much!
@Amiris Brown Yes chalk that one up to learning, there are always deals out there and the more numbers you crunch the better you'll get at your estimates.
Regarding the mold, I've never heard of anyone removing and sanding the undersides of the hardwood, but that's not to say its not done. Moldy wood (such as floor joists) can be salvaged if the wood hasn't rotted. Mold needs oxygen and humidity/moisture to survive, so if you get the moisture issues fixed and rob it of oxygen it won't come back. This is typically done with oxygen bleach and sealing the wood. I would think that replacing the hardwood is easier and cheaper when you factor in all the time to remove the wood, sand/treat the wood, and the fact that you have to save each piece and remember where it went.
Also, remember that the goal isn't to make the nicest house on the block, its to make a profit on flips. Remembering that you're not building your dream house is a mental block for many new investors. And rentals will be ruined by tenants so there's no sense putting in nicer features in these properties. I'd imagine a cheaper, faux-hardwood is cheaper and there is no issue of improper mold remediation by the contractor. I hope that helps!
Originally posted by @Mark Gallagher:
Mold remediation is the biggest scam going and makes me want to open a mold remediation company asap so I can charge people $20K for what will cost me about $3K to do. Mold is caused by water.. you have to stop the cause of the water which is usually pretty easy to do if it's a leaking pipe or a busted roof. Then, you remove all of the damaged materials, and depending on what happened underneath, if nothing, then you're done. Literally, that's mold remediation in a nutshell.
A newbie should never, ever, ever take on a project with repairs exceeding $100K. Everyone wants to hit that big home run right out of the gate. Take a property that needs $10K in work, will sell quickly, and you can make $10K. Those are VERY easy and VERY hard to mess up. $100K in work is just a big, big headache that should not be taken on by someone with no experience.
Really appreciate your experienced insights, Mark!