Finally!! An REO acquired

[Rich Weese]

As many know, I moved from TX to FL to buy RE about 1 1/2 years ago. Bought a self storage facility before moving here. It has been great.
I was trying to buy foreclosures or reos on sfrs also. It has been a pain in the butt. Tricky lenders, realtors and most properties turning into auctions or taken off the market.
Finally acquired a 4 br- 2 ba- 2 car in Cape Coral. for 61K. It took Wells 4 months to close.
I'm posting this from start to finish and I think it'll be good, but not sure it is worth the time and hassle. Closed on 2-23. Demo portion will be finished by 3-15 and projected re-hab is under 10K. Expect to list in the 90's.
My friend Will listed a re-hab start to finish in CA with a 90K profit. This will not have that obviously, but I've always been more concerned about % of profit. These smaller homes also allow almost anyone to do one, due to price range. I would hope I might net 15-20K after all is said and done. Depending on # of months to sell, I think annualized return will be very comparable to Wills' but it wasn't easy to find this home. More info to follow.
If this works well, I might have my asst. continue doing them. If not, I have a different idea for investment. Good fortune and fun to all. Rich.

[Steve Babiak]

Rich,

There is this other thread where people are posting on REO offers, where you might wish to give your particulars:
http://www.biggerpockets.com/forums/16/topics/48244-reo-offers-accepted-

[J Scott]

Start building relationships with the big REO listing agents and it should help with your percentage of accepted offers. Once they know you (and know that you're a serious buyer), they'll let you know when they have a bank that's desperate to sell a property, they'll help push your offers through, and they may even tell you high you'll have to offer to win a property when competing against other investors.

Also, once you know your market down-pat, you'll start to get a good idea of how much banks will accept for various types of properties in various conditions that have been on the market for various lengths of time.

We average getting about 1 out of 5 offers accepted on REOs (we're very picky), and I know other investors who have even better ratios.

So, it's definitely possible to get enough REO projects to keep busy, but it takes a good bit of upfront work and there's a learning curve with respect your market and the agents in your market.

[Jeffrey K.]

What is taking so long with the demo? If you would have had us do it we would have had the whole 15k job done in that time!

[J Scott]

Originally posted by Jeffrey K.:

What is taking so long with the demo? If you would have had us do it we would have had the whole 15k job done in that time!

Yeah, I was thinking the same thing. I can't imagine $10K worth of rehab (assuming all cosmetic work) taking more than a couple days if you're hiring it out...a week at the most...

[Jeffrey K.]

It might be mold and take a bit to dry out?

[Rich Weese]

Good questions! My asst is handling this from start to finish, learning process. Removal of tile, counters, cabinet doors refinishing, landscape, patio cage cover and some other stuff. I think it'll be done before 15th, but we'll see. Rich.

[Jeffrey K.]

Do you think getting this one was just luck or do you now have a source for deals? Will you be able to train your asst to handle all of your local rehabs so that you can pump up the volume?

[Account Closed]

It'll be great to hear about the process. Sounds like your assistant is getting some quality education and experience along the way.

[Rich Weese]

We've gone through several folks that said they were in the research business. Not good luck. We also were involved in research of our own and bidding at auctions. Lots of reasons for not being successful.
We do have a couple realtors giving us good attention now. It was much easier putting a complete team together in S. TX than in SW FL. We'll see. Rich

[Don Hines]

Good to see you posting again Rich. I have missed ya. We know local markets differ some. I am celabrating closing on a deal yesterday after 19 offers since August. I really bought a peice of work to find my deal. I figure about 30k for the rehab. I am always amazed at the pictures Jason shows on his "before" photos. Most of them look like they will sell as is compared to what I see available in Little Rock.
Don

[Rich Weese]

Thanks Don for the comment. I'll post my before and after pics when done. This first one here in FL has been slow. We should still hit the 15th for listing. Tile floors should be finished this weekend, then counters, plumbing and landscape. I'll know total rehab by next week and listing price.(mid 90's) Rich

p.s. I've flipped 30-40 homes and the MOST rehab I've ever had is 12K, don't want re-builds!

[Jeffrey K.]

12k! You might find more deals if you are able to buy the bigger fixers where the retail buyers are not in the picture.

[Don Hines]

Originally posted by Jeffrey K.:

12k! You might find more deals if you are able to buy the bigger fixers where the retail buyers are not in the picture.

LOL Jeffery
That is what I tried to say. I had to quit trying for the pretty ones and start looking at the ugly ones. Kind of like trying to find a girlfreind at 2AM.
Don

[J Scott]

Originally posted by Jeffrey K.:

12k! You might find more deals if you are able to buy the bigger fixers where the retail buyers are not in the picture.

Yup, this definitely explains why it was so tough for Rich to pick up that first REO...there's a lot of competition for the pretty ones...

[Will Barnard]

I'd agree. Going after just cosmetic fixes keeps you in the fight zone of retail buyers which makes it tough going for anyone to win a deal Rich.

$61k purchase + $10k rehab is all-in at $71k which is approx 75% of $95k estimated exit. Not bad, but not much room for error since your exit is below $100k. I have stated often that when exit prices are below $100k, investors should tweek their 70% rule to allow for enough spread for profit and margin for error.

I hope it turns out well for you Rich. Do post final results and photos. When you are ready to proceed with another, perhaps amending your strategy a tad will better serve you.
You know my phone is always available to you if you would like to chat about strategy/steps/ideas/etc.

All the best - Will

[Rich Weese]

OK mathematicians. My anticipated holding period is 90 days. (we'll see)
If my "all in" is 71K, sells for 95 and my selling costs are 5K (including commission-my asst is Broker for 3% waived ). I net 19K on 71 in 90 days. I believe that is 27% annualized would be 100% plus. That is ok if you do enuff.of the things.(this is based on an offer going through we currently have.
Will, restate your #'s on the one you posted with annualized return based on your length of time. I assume yours is much better?
I still like my "small investments" with a back up startegy if it doesn't sell. Rent will still yield a decent return. This is a 4 br 2ba 2car that should get 875-900. Rich from Utah tonight.

[Rob Gillespie]

Time is money! Kick your assistant in the butt! LOL! With only 15k profit, you gotta get movin! :lol:

[Will Barnard]

Rich, because you used all cash and because you save 3% in commissions, you are well ahead of the game and that is good.
25%+ returns in 90 days is what I shoot for and always try and keep them above 20%. That said, you did just fine on this one thanks to your two extra advantages.

Not sure which property you are referring to for me to compare as I have several so I will list the two most recent:

$266k acquisition, $40k rehab, all-in $306k.
After expenses, assuming my buyer performs on the $389k exit, I have $30k in hold costs because I used a privtae lender for some of the acquisition and my agent fees were 5%, so my net would be $53k.
Borrowed $225k, my cash = $81k.
$53k profit on $81k cash invested is 65% in 3 months.
Apples to apples, had I used all my own money, my profit would have been $60k on $306k invested for a 19.6% return in 90 days.

Other deal I just posted about in another thread:
$250k acquisition, $15k rehab, sell at $409k, $30k re-sell/hold costs, $10k eviction or cash for keys, profit of $104k. Assuming I use all my cash, $104k profit on $275k cash investment = 37.8% in 4 months.

From your profit stated, did that include the deductions for acquisition (escrow/title) costs and misc holding costs like insurance, taxes, utilities?

[J Scott]

Originally posted by Rich Weese:

...sells for 95 and my selling costs are 5K (including commission-my asst is Broker for 3% waived ).

Your area may be different than mine, but $5K in fixed selling costs seems low to me...

You'll have 3% to the selling agent (buyer's agent), and probably at least 4% in seller paid closing costs (most buyers in this range need all their CC paid). Add to this a home warranty ($400) which is popular in this price range. And if you plan to sell to an FHA buyer, you'll need two appraisals, and you're buyer is legally not allowed to pay for the second appraisal, either the mortgage broker or the the seller (you) will have to pay for it; my mortgage broker generally covers it, but many do not, so you may be on the hook for another $400. On top of that, your assistant will likely have some broker costs associated with the listing, such as MLS fees, etc, that he/she may pass on.

Add that up, you'll be average about $7500+ in fixed selling costs.

[Rich Weese]

Under contract at full price. Buyer qualified yesterday, supposedly. I'm not involved in this and currently travelling. I'll try to get photos of before/after in near future. Gone for another 9 days. Waiting for flight. Rich

[Will Barnard]

Good luck Rich, hope the transaction goes smoothly and the buyer performs on time.
Make sure your agent stays on top of the buyers agent and the buyer's lender.

Have a good flight and talk with you after you land.

Will

[Rich Weese]

Just remembered this thread! I haven't been very good about keeping this current. Here are the pertinent items.
1. Buyer backed out. Agent said he realized he wouldn't qualify. Three days later, had two new buyers, one at $101,000 on FHA.
2. Appraisal came in at 101K.
3. Second appraisal came in at SEVENTY THOUSAND!! Supposedly, appraiser didn't get out of his car. Had no access to home. Don't know if this is normal for FHA.
4. Appraiser had to return and actually go in the property.
5. New appraisal came in at 90K.
6. Buyer decided to pay difference in cash
7. Scheduled to close next week.

This flip has had a lot of bumps along the way, including too much time in rehab, firing original tile company and first buyer falling through. It is still scheduled to close in 77 days from start to finish and net approx 20K after all costs on a total investment of 71K. I think that annaualizes over 100% return on funds.

The % return is very good with literally no risk. Being a 4-2-2 with 1800 plus sq ft, it would've been an ok rental at 850-900 mo.

The key is obviously to do this on a regular basis. My assistant wants to continue doing this, so I guess we will. This area requires a relatively small investment to acquire, newer homes available, no shortage of inventory, tons of laborers, and someone else to oversee.

Hopefully full accounting, and photos will be posted next week on successful close. Rich

[Thorney Gibson]

Great read. I dont understand how Appraisers can attemp to give Appraisals without getting out of the car.

[J Scott]

Originally posted by Thorney Gibson:

Great read. I dont understand how Appraisers can attemp to give Appraisals without getting out of the car.

According to Rich, the appraiser didn't have access to the house, so he couldn't go inside. What typically happens in this case is that the appraiser will call the seller directly to request access...I wonder if he couldn't get in touch with Rich directly and just gave up?

Anyway, this is why you need to take control of your appraisals:

http://www.biggerpockets.com/renewsblog/2011/01/19/controlling-and-conquering-your-appraisals/

Had the second appraisal come in at the same value of the first appraisal (which definitely would have happened if the second appraiser had been given a copy of the first appraisal), it would have resulted in a lot less risk in the deal...

[Account Closed]

rich, congrats..i'm curious about your assistant's focus....do you incentivize him financially from the flips, or is it a natural interest for him?