Flipping homes in a foreclosure heavy neighbrohood?

[Ryan Dossey]

Someone recently brought me a property that they thought would be a good candidate for a flip. Purchase cost of 27k rehab of 35k Arv of........? 

The trick I was finding with this property is there were foreclosures going for 50k. There was also a rehab or two going for around 100k. Even averaging them out the home looks like it would go for around 75k. Do you guys just choose to avoid properties like this? Do you not count foreclosures in your comps? Seems like this is a great way to lose money. But I'm also very cautious on what I think is a deal/is not.

[Andrew Syrios]

REO's usually need a lot of work so they are not good comparables for fixed up homes. The comparables you should use are the home owner and investor sales. That being said, if there are a lot of foreclosures and not very many normal sales in that neighborhood, it tells you something. In all likelihood, you don't have a very active homeowner market there. These areas are usually best for buy and hold of wholesaling. I wouldn't average them out to find the ARV, but I would definitely price your's conservatively as compared to the other fixed up homes and if you are going to flip it, plan on it taking longer than normal.