Flipping Houses what is a Property Really Worth?
I just came back from title this morning having sold a flip property without actually doing any renovation.
Flipping Houses in Las Vegas has steadily become more difficult because demand is higher than supply. As a Real Estate Developer I am constantly on the look out for deals.
My challenge is with the plethora of Real Estate Investing Seminars, over the last few years, anyone with cash in a 401K is a real estate developer. Now there are husband and wife teams, small guys going solo and they are all Real Estate Developers looking for deals and low hanging fruit.
A Year in the Making
Some Real Estate Investments have a long life cycle. The property I sold today has been almost a year in the making! I found it in March 2016 and through a series of processes had to list it on the MLS. I ran a short sale with the bank. Finally received short sale approval in late December 2016. My JV partner put up the money and we closed on the deal in the middle of January 2017
My original idea was to renovate and flip. I realized that I had enough upside to just re-market to another investor and it would be a win win for all.
Flip with no Renovation
I took the property and immediately re marketed it without any renovation with price tag of $117,000. We had purchased the property for $71,233 including closing costs.
It's part of my marketing effort I sent out more than 5000 emails to Realtors, Real Estate Developers and House Flippers in Las Vegas offering this property as a Flip Real Estate Investment.
As a Real Estate Investor Can you buy something for almost nothing and make $50,000 Profit?
What was interesting to me is that I received an email from an investor I have done business with in the past who in no uncertain terms told me that I could not purchase a property for $65,000 do nothing and expect to make an over $50,000 profit.
What do you think?
First of all I believe that the intrinsic value of something has nothing to do with what you paid for it. People over pay for garbage all the time, and there are people where lightning strikes and they're able find the deal of a lifetime and of course, there's everything in between.
Don't you think that the value of something is not set by what you pay for it, but what someone else is prepared to pay?
Someone has to be Willing to Write the Check
They just reduced the price of Michael Jacksons, Neverland Ranch by $33 million because no one was willing to buy it at $100 million after three years of marketing.
How did they discover that $100 million was too much? No one has been willing to write a check! Will they be able to sell it with the price reduction? I don't know I guess we'll just have to wait and see if someone's prepared to write that $67 Million Dollar check.
Value is not set By what You did or did not Pay
My point here is simply this, just because you paid too much for something it doesn't mean it's worth that and more. Just because you got a great deal on something it doesn't mean that you should sell it for less than market value. What is Market Value? It is the price determined by the Market and someone writing a check for that amount.
I can't tell you how many realtors said to me; "well you only paid 65,000 for it aren't you asking a little too much?"
The honest answer is I can ask whatever I want for it. If somebody comes along and writes me a check, well that's what it's worth!
Someone wrote me a Check!
At the end of the day we sold the property to a House Flipper Real Estate Investor for $96,000 cash. No due diligence, No inspection, No appraisal, seven they close and we closed today.
This last week from my email blast and conversations with Realtors, Real Estate Investors and other House Flippers, I've had a belly full of debating the value of property, ARV and comps.
Who is Right?
I have written many other blogs as to Value and ARV. I believe that the value of something is determined by whatever the market is prepared to pay for it. The only person who should really care about how much is paying too much, or, paying to little is; YOU! Because you are the one who's buying, you are the one who is taking the risk, as far as I'm concerned everyone else can get lost.
How do You Determine What Someone might Pay for a Redeveloped Property and How much should you buy it for now, is another conversation. I will tackle in my next blog.
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