Buy/Flip from other investors?

Question

Hi. Brand new here. In my area (Baltimore) I see a ton of homes purchased, fixed up, and put on the market for fair value.
However, these homes are on the market for 4+ months, and the seller
is "Motivated", "must sell", "any reasonable offer".

I can see by the tax records that these homes were purchased late last year and  '07. They added a new AC, kitchen, bath, etc, and now the homes are sitting empty with the investor itching.

My question is, I have financial backing, and cash, and would like to know
the possibility of the investor just wanting to get out of the property? They bought it for around $160K, put some money into it ($20K) and now are asking $269K and no bites for months. What are the chances they might be willing to take $190K-$200K cash/quick closing, then I turn around and maybe auction it off for $245 or so? Why wouldn't they just auction it off?

Thanks BG

Ryan Webber · Answer

The bottom line is whether the deal meet your numbers.  Most rehab investors pay too much for property, put too much into it, price it too high to sell, and then take too long to sell it.  Most of the time these investors are into the property for more than you could buy it for and make it a deal for you.  Now if they are willing to take a loss on it, then you might be able to make it a deal.

The bottom line, again, being that it needs to hit YOUR numbers, and remember to be CONSERVATIVE in your estimates.  This is a business, and the only way to profit long term in this business is to be conservative on your estimates of price, repairs, holding time, closing costs, etc.  You might get lucky on one or two, but if you are consistently riding the line you WILL get busted.  The investors that last are the ones that understand this and plan for it by being conservative in their numbers.

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Thanks for all the great responses. Yes, Ryan, you are right. It is a tremendous risk. Let me pose this question then. If I KNOW that a house is empty, and I KNOW the seller is an investor, and I KNOW they want to get rid of it.....how can I profit from this condition, with the least amount of risk? (or moderate risk)

Thanks again....BG

Ryan Webber · Answer

If they're just sitting there for months at 269K, knocking 10% might not do the trick.  You might be looking at more like 20% off.

Either way you need to factor 10-15% minimum of ARV (depending on your financing and how much a realtor/auctioneer is charging you) for holding costs, resell costs, and closing costs.

If you buy it for 190K, you sell it for 220K, and it takes you 2-3 months to actually close on it when selling with a 10% premium to the auctioneer and closing costs, you just broke even while taking on a tremendous amount of risk.

Keep in mind when auctioning it, the auctioneer could take upto a month to market the auction and then the buyer will still probably have 30 days to close.  You will still have to pay closing costs with an auction and it might not meet your reserve (meaning you pay the auctioneer for nothing and still have a house on your hands).

Richard Warren · Answer

It would be just like any other business, people go into it without enough cash and find themselves strapped.  When they are unable to get the price they want and the holding costs are eating them alive they may find themselves in a situation where they need to get out.  You can always make an offer and see what happens.

8)

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I would love to hear answers on this.  I assume many "green" investors, or just investors with bad timing, could be in that situation.  It would be nice to hear if someone had success with this model.