Are HUD houses a good flip option?

Question

As a Wholesaler, should I avoid HUD foreclosures or work as many as possible?  A realtor recently told me the rules have changed.

Gina Worsham

JaMarcus Joseph · Answer

As someone who spent a lot of time visiting foreclosures in the NLR, LR, Jacksonville, and Sherwood areas, I'd say go for them. Main problems with them for me are: need for earnest money every time, banks take their time, and the need for a double close or contract adjustment for a partnership.

Here are some tips I've learned chasing foreclosures, create a system to get in and out of the house in 20 minutes or less. Take pictures and/or video. Take notes. Follow your gut and stick to your guns with your realtor. While they care about you making money, many aren't trained to do repeat business and don't think outside the box. Newbs rely on their broker too much. Do a quick estimate of $1-30/sq ft (typically if you're over $20/sq move on). I add it up. For example, the laminate vinyl planks we're installing ran $1.71/sq ft for the planks, about 99 cents a linear foot for quarter round (saleman says 1/4 total sq ft is a good rule of thumb for measuring trim) plus nails, $1-2/sq ft labor. So I just assume:

$5/sq ft for flooring

$2/sq ft for interior painting

$2/sq ft to retexture ceilings

I took a few people's checklists to create my own for the property I target. I did the same with my pro forma. I prepare a wholesale the same way I prepare a property I'd keep. 3 rental comps and 3 sales comps right on the pro forma.

Anyways, back to the subject on hand, riding REOs and HUD foreclosures can be VERY time consuming with little results. Like 7 house visits and 5 realtor offer contracts a day for about 2 weeks before we got one offer accepted. No counter is common. Earnest money peaks their interest more. You'll be amazed at how much a bank comes off the list on their first counter. If my first offer is accepted, I offered to high. I try to go back and forth at least twice to ensure I have the lowest number. If they're motivated enough, they'll get to your number. Otherwise walk and wait. Don't sacrifice your bottom line to get the deal. There are plenty of deals. Sherwood alone has over 35,000 properties. I.E. there's always another deal.

Ok, I'm done rambling. Don't hesitate to email me your deal. I'm slowly gaining momentum. I'm one week into my first house flip. I plan to flip at least 12 houses and/or contracts this year and add 100 units to my portfolio.