What % off list price do you generall bid on REO's

Question

I am reading that REO's in the Tampa Florida area are going for list price. How can this be accurate as that leave NO meat of the bone to rehab, sell & make a profit. ANY insight & advice for the Tampa Area would be much appreciated. I am trying to determine what % off list price is considered a good offer that the bank will consider.

Ned Carey · Answer

The % of list price is totally irrelevant. Some REO are listed below market, some are listed above market. The number you should offer is the number that works for you.

Many areas have become hot and very competitive. This means properties get bid up higher. Sometimes that can mean sit out of the market for a while or find another strategy that works in the current market. REOs are certainly not the only way to find deals.

@Waylon Gates wrote

Along those lines; most great deals are not "found" but rather negotiated.

Ryan Landis · Answer

@Shea Alexander and @Ned Carey are spot on. List price in many markets is an attention grabber. Not sure what types of REO's these are, but just a few years ago I remember HomePath shelling money into the homes before putting them on the market. It was an REO, but it was in move in condition.

Chris Seveney · Answer

@Emily Reynolds - Its not about the % off on the deal but you need to run the numbers to see what the acquisition, rehab and sale price will be.

You may be right though about meat on the bone. I am in the DC market and right now I am not buying because all entry level homes in good or not so good condition are going for market rates and I scratch my head to see how some people are making $ without cutting corners on the rehab. What I am seeing is a lot more rehabs that are just carpet and paint and flippers leaving in old windows, heating systems which are on their last life.

Since the markets have picked up, everyone believes they can flip real estate like you see on HGTV and the market is getting flooded with fix and flippers. It doesnt mean they are making money, what is does mean though is property prices are increasing because of it.

Mark J. · Answer

@Phil Bach is absolutely correct when he says REOs are going above & beyond MLS retail prices. In my newbie opinion, at least in the areas that I monitor, in order for a flipper to make good returns now, the MLS retail price of homes will need to continue to appreciate another 15-20% within the next 12 months. As many areas have already seen that level of appreciation in the last 12 months, a combined 30-40% rise in MLS retail prices within 24 months seems to me at least unsustainable. The spread / margin that flippers and wholesalers required has shrunk considerably-- i.e. NO meat on the bone. That about sums up the situation right now, in my newbie opinion.

I primarily focus on purchasing foreclosure properties from the Hillsborough County auction. Let me give you an example of the current situation which may illustrate another issue that may be impacting the Tampa market which hasn't been discussed yet-- fraud.

Last week, a property came up for auction that had been vacant for more than three years and needed a complete gut (conservative reno budget of $30K). I knew the property very well and when running my numbers, the most I could pay for the property was $70K, maybe $75K absolute tops-- because I thought the property had great potential as long-term rental (not as a flip). When the property came up for auction, I was quickly outbid and the property sold for just over $100,000.

Now to make sense of how crazy that is, a few weeks earlier, I purchased a similar home, less than one mile away, that had already been completely renovated top to bottom with all new appliances for $99K. And this was a retail purchase right off the MLS.

So, why would someone purchase a property for $100K that needed a $30K renovation and was maybe worth $110K-120K  as a flip or only command $1250 per month as a rental?

That's a good question. Phil Bach suggests it's because people don't know their numbers. There may be some truth to that, but people who are consistently plunking down $100K in cash didn't get that money by being financially illiterate. The buyer of this particular property is well-known local flip/wholesaling company that buys and sells millions of dollars in property. SOOOOOOO--- why would a "pro" dramatically over-pay?

I asked that question to another very experienced flipper/wholesaler in the area. His response was that money is being washed and parked. He said he sees the same thing happening in other markets around Florida (particularly South Florida) where foreclosure properties are going 40-50% over retail.

Is he right? I don't know. He was just offering an opinion. But is does provide at least some basis for what seems to be "irrational" market behavior.

Michael Haynes · Answer

@Emily Reynolds, Hello, Waylon Gates sounds right on. I would add that you have to send your offer in writing. Why? Because someone like me who has properties for sale, will put that letter in the file for that property and maybe six months later I will give you a call and make a counter or accept your offer. I get letters every day from BP members in Tampa, the same type of "I want to buy your property for CASH..." I get letters like that from out of State companies. If you call the number that they list, they usually have a secretary who answers and wants you to give details of the property so they can get back with you. They never know what property you are talking about. Total waste of my time to call on those form letters offering to buy my property for CASH. The other thing that was described with the question of why the Banksters won't budge on the Price of their REO's in a Strong Market? Because the Prices are still going up. Our JOB is to be able to recognize what part of the Real Estate Cycle we are in and learn that when the Market is or could be topping out, you need to Hold them or Fold them and wait for a better opportunity. I am selling and limiting myself to buying one property at a time, at a big discount, because I think we are overpriced here in Tampa and I am not in my Accumulation stage of life. The % below Market Value depends on your ability to do a good Search for one that you can get at a Discount. It's the same thing with a Stock. You can do the research and buy the Stock or house at what you think is a Discount . Then, You are taking the Risk that the bottom Support in the Market, Stock or Real Estate, will hold out. Otherwise, the short term fix up and flip or holding period for the expected run up on that Stock, doesn't occur and you are now Stuck with a Buy and Hold Rental or Stock, for a longer period when you can at least break even with your, now, Investment. My lawyer who lives in a big new home, one block South of Gandy Blvd. has just sold three fixer uppers near the AFBase, that he rented for a time and bought two more houses to rehab and rent. An agent told me that on the East side of Dale Mabry, where my lawyer is living, that a tear down lot is now going for $175K and the Builders cannot make a big enough profit with those. As a comparison with how crazy it is, there is a lot near Gandy and West Shore asking $700K and  they are tearing down perfectly beautiful houses on Davis Island for $650K to build $1.5million + dollar homes. At this time I would Sell two of my rental houses in order to Buy my friends two houses, on the lot next door, in a bad neighborhood, because I can get them for $30K under Retail, after a new roof and electric.

Waylon Gates · Answer

@Emily Reynolds Hi Emily,  I checked out your fitness trainer site and read the about me page.  You definitely have the drive and persistence to make this all work great.  Congrats on all of your accomplishments this far in life.

Here is what I tell everyone that is trying to find the place to get that elusive great deal.  Just start talking to people, making offers and generally dive in and go for it.  You will find more deals by just making offers than you will by researching who owns the house and what you think they might take.  The banks that own houses can be every bit a firm on price as an owner occupant.  Especially in a hot market.  What I would do is let everyone that you run into know that you are looking for a property and be sure to tell them that you don't mind something that is in need of a little help.   After doing 100's of deals I can tell you with out a doubt that my best deals were referrals from people that knew that I could help someone who needed to get out of there house.

In the MLS you will find every type of description of houses, for example; estate, foreclosed, vacant, motivated seller, institutional seller, REO, bank-owned, divorce forces sale, etc..  I think you get the point.  For each one of those descriptions I could come up with a strong argument for at least one reason why it could be a very difficult one to get below market.

Now, if you haven't gotten sick of my wordy post to this point that is good because you have make it to the most important part.   The super (not so) secret of how to get amazing deals.  Make Offers!  it is truly that simple.  Of course you can be more choosy about what you want to offer on, and maybe find properties that at least look like they need some updating, but most importantly make a lot of offers.  I have found great deals by just making an offer.

Now there are obviously many other ways to find deals and if you want a more detailed approach feel free to PM me and I will give you a more specific ideas based on your more detailed picture of what you want to do.

Most of all, start getting the work out that you want (not only REO but) any house that you can purchase at a discount, and start writing offers.

Phil Bach · Answer

Many REO's are going above & beyond list price right now.  There's lot of new buyers and investors in the market who don't understand the numbers, and the inventory is limited.

Brent Coombs · Answer

As well as Investors, there's these weird group of Buyers out there called Owner-Occupiers. There's another group also, called Speculators (read: gamblers).

Why WOULDN'T Banks target these two groups of golden geese? (After all, they're OBLIGED to!)...

Phil Z. · Answer

Your way off.  They own the property because the borrower missed mortgage payments and they are trying to salvage loses.  They list properties for what an appraiser or their agent say it is worth.  In some cases one or the other can be way off.. its just an opinion.

What % off list price do you generall bid on REO's

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