All Forum Posts by: Account Closed

I'm also wondering if this indicates we're shifting from a "buyers' market" to a "sellers' market".

This isn't necessarily problematic since rehabbers are on both sides of the deal, but I would hate to rely on appreciation to make these deals work since so  many "flippers" got in trouble in 2006-2007 for doing just that.

That being said, I don't necessarily think a market recovery would be bad for rehabbers. 

Thoughts?

So far all of my rehab deals have come from the MLS.


I have an automated email feed from my agent that sends me (REOs, Short Sales, HUD, Auctions).


Over the past couple of weeks I've noticed a bunch of REOs listed for sale have been "spruced up". Some even have new kitchen appliances. They seem to be particularly common with Fannie REOs. 


The past couple of weeks don't constitute a very large sample size, but I must admit I'm a bit concerned. I'm definitely getting priced out of the market for a lot of "standard" MLS foreclosures. 


Is anyone else noticing this problem?


I can't afford high variance at this point since I'm only doing one deal at a time (and I'm relatively new/ still trying to "prove the model"). As such, I've been reluctant to purchase at auction given the added risks. If I had a dozen deals under my belt it wouldn't be as big of an issue. Now I'm  finding myself turning to auctions as the primary source of flips for the future, and I feel like it's too early. 


One possible contingency is to broaden my rapport with local wholesalers. I've recently started contacting them and giving them my information. It seems like this might be a relatively inconsistent solution, though. 

I've also eased my criteria (SFRs in C- neighborhoods, 1 bath, less than 1200 square feet, etc). This also makes me nervous because of the lower profit potential/ smaller pool of potential buyers/ criminal activity etc. 


Anyone have any advice on how to mitigate risks from an auction/safely work in less than ideal neighborhoods/broaden sources of deals?


Thanks very much,
Patrick 

@Clay Smith 

"I bought one just the same, built in 2002, 40k below market comp rate. I have been floating it as a wholesale offering owner financing or lease option while waiting for the 3 month from date of deed recording; to get started rehabbing."

Why do you have to wait 3 months? FHA requirement?

Thanks.

@J Scott 

"Even if you did purchase at -- say -- $110K, if you do no rehab to it, you're likely going to have appraisal issues when you go to resell to a financed buyer. Trying to buy and resell to a financed buyer without improving the property is very tough with FHA or conventional lenders."

This is what I'm most concerned about. If my offer of $95,000 gets accepted (it probably won't), I'll upgrade the bathrooms and kitchen, and list.

"If you still like the deal, perhaps lock it up with an inspection contingency and then get a good inspector in there to take a look. If there's a major plumbing issue, you should be able to figure it out even with the water off (they can do a pressure test). So, don't let that stop you from moving forward."

Right. I have a couple of inspectors that I trust. We went through major plumbing problems on the last house I rehabbed so the process doesn't worry me (just the price/ cost). 

"It can't hurt to ask the listing agent if s/he knows of any issues with the house -- I've had agents be completely forthcoming about these things (legally, they are obligated to if they know of something). Better yet, get a buyer's agent to do it for you."

We did. Didn't know anything. 

Thanks for the reply!

@Clay Smith 

"Buy it."

I submitted an offer today. 

Thanks.

@Clay Smith 

 No, Wells Fargo sent along an advert for financing it. 

I pay cash for my flips, though. 

I have an inspection contingency (my only contingency) in the offer.

Gas and Electric are both on. Water is not (house is currently winterized). 

@Clay Smith 

Not aware of any of these problems, however, since it's an REO the seller disclosure is blank.

Nothing came up on the property when I googled it. 

@Joseph Brandner 

It's on the north east side of Lexington off Liberty Rd. 

I don't think it has any of those issues. 


@Joe Marcum 

Thanks for the advice!

Does the stigma come from the fact that has been foreclosed upon or because there are good substitutes (building your own in a better location)?

Like I said, the CMA indicates that houses have been selling in this area at the $140-150 price range.

I definitely agree with you that it's almost required to have stainless steel appliances/ nice counter tops. However, since the appliances (black) that are in there are all in working order, I feel like I would be destroying a lot of value by taking them out and putting in stainless. 

As it turns out, the bank did hire contractors to come in and spruce the place up (clean, paint, new carpet, winterize etc). 

I'm thinking I might redo the bathrooms, but other than that there doesn't seem to be a lot of rehab work required. 

Even if I get the house at a good price (and I do think $95,000 is a reasonable price) I don't want to have to hold this thing for 6 months trying to sell. I need to be able to demonstrate that I've made SOME improvements just to improve the marketability. 

You're right about the lot, but it's consistent with the other houses in the area. 


Thanks for your detailed response. 

This is a continuation of my last thread with more detial. 

I'm a relatively new rehabber in central Kentucky and so far I've had a fair amount of success flipping REOs from the MLS.

Today I took a look at a 4/2.5 SFR currently listed for $118,000.


It's owned by Wells Fargo and has been listed since October.


The original list price was $140,000.


I valued the property at $145,000 based on comps. About a dozen similar properties have sold in the area over the past 6 months in the 125,000-155,000 price range, but this house has an extra bathroom half bathroom.


The odd thing about this house is that it's in pristine condition. Even the kitchen appliances look brand new. It's almost as if the people who lived there had recently upgraded the house, weeks before it was foreclosed upon. The one caveat is that the house has been winterized by the bank's preservation company. Because of this, we're not 100% certain the plumbing is in order (although the house was built in 2003, so it's doubtful anything is too messed up).


Now, I know value is mostly created by purchasing REOs at a discount. I also know that no potential buyer will accept $140/130/120,000 if they know I purchased the property for $95,000 and made no additional improvements/ repairs etc. I feel like this could be a trap house (no pun intended). My intuition is telling me something isn't quite right about this situation. It really concerns me that my valuation is $145,000, but the bank was unable to sell it at $140,000 (they've been lowering it by $6000 every 2x weeks).

Is there that much of a "foreclosure bias" among owner occupants?

Has anyone been in a situation like this?


Do you have any general advice?

There do seem to be a lot of houses fore sale in the area.

That being said, there have been a lot of recent sales (average ~40 days on the market which is pretty damn fast).


I checked to see if the school districts had recently changed. I checked to see if there had been a recent spike in crime. Neither of these seem to be the case.

Sorry if this was a wall of text.


Thanks for reading,
Patrick 

Hey BP,

I'm thinking about submitting an offer on an REO property.

The price was just reduced today fairly dramatically.

I took a look at the property and it seems to be a good candidate.

My only concern is there are a large number of homes for sale in the area (particularly fsbo).

I checked to see if the school district had recently changed or a spike in crime had occurred. Neither seem to have happened. 

Should I be concerned?

Thanks,

Patrick

I posted this in the section for agents, but didn't receive any replies. 


Thought I'd post it here as well. 

I'm currently a full time house flipper/ real estate investor, but am interested in starting my own brokerage firm in part to reduce the costs of my flipping business, but also to have full access to the MLS, provide secondary income, etc.

In Kentucky, in order to become a broker, you must work as a licensed real estate agent for 2x years.

I don't meet this requirement, nor am I interested in working as a real estate agent full time.

As such, I'm thinking about partnering with someone who does meet this requirement.

The idea is- I'll pony up the initial cash, provide the brokerage with a stream of consistent listings, help recruit agents, and handle the strategic business decisions/ administrative duties, while my partner will handle the day-to-day operations of the business.

Does the majority owner of a brokerage have to be a licensed broker?

If so, to overcome this problem, could we form an LLC and segregate the equity from the share of distributions (at least until I've recouped my initial investment/ earned a healthy return)?

Finally, if I (as a flipper) make an offer on a sfr/multi that's not currently listed and my offer is rejected, would it be a conflict of interest to pass the deal along to the brokerage that I also own a stake in?


Thanks,
Patrick