All Forum Posts by: Gordon Vaughn

Great, see you soon Caleb!

SHOWING MON. 9/24 @ 5:30PM. Very hard to find 3/2 ranch, totally renovated & leased to a long time tenant @ $1,350 monthly. New lease has recently been secured. Annual neighborhood appreciation 10% in 2017 & 2018 currently. Close to The Battery. Sprayberry High School district. Subdivision values over $200K+. Immediate cash flow w/ no holding costs, no renovations, and no tenant placement. No brainer! 

DO NOT DRIVE BY! Contact (404) 787-9959 to schedule appt or attend showing 9/24 at 5:30pm. Thank you

         Some of you are incredibly lucky to live in a city that provides a macro-market for investing. What this means is that most of the homes in a particular city, with few exceptions, have similar styles of construction, similar floor plans, use the same or similar materials, are affected similarly to exterior conditions, and carry the same values based on square footage. Evaluating deals become very simple and easy when the majority of homes in these cities share the same everything. Las Vegas is such a city, and most homes in LV really don't need to be "evaluated".  You can find 3 homes exactly like the subject home at any search radius and the numbers will tell the same story based on identical values, while material choices are limited and rehabs are similar in most instances. 

       Then there are most of you that live in Micro Markets such as Los Angeles or Atlanta. These markets are typically identified as larger land mass cities of numerous types and styles of homes located in neighborhoods that carry completely different values based on a multitude of different amenities, demographics, and desirabilities. Evaluating an investment deal in these markets based on a similar home 1 mile away can be the end of your investment career. 

       The biggest question on every investor's mind when approaching a potential deal for purchase is: "How much money am I going to make?" The reality is that this question begs the only answer we as investors want to know when it comes to purchasing a home for investment purposes. And in a nutshell, it all comes down to accurately determining the net profit to be made on a flip or rental. While this entails several different aspects of analysis, I will go over the 2 most crucial aspects of valuation that every investor needs to know in order to accurately determine profit potential with each and every evaluation. 

1.) Rely on comps in the same subdivision as the subject property.  One good comp in the same subdivision is better in determining value than 3 good comps within a 1/2 mile radius. This applies to both macro & micro markets. This assures that you know the home's true ARV and are not getting duped by high value comps in a nearby subdivision that carries completely different values than the subject subdivision. If there are plenty of good comps within a 1/2 mile to 1 mile radius that will "justify" the value you're looking for based on the one comp in the same subdivision, you have your value number plus or minus adjustments for square footage and amenities. If there are at least 2 good comps within the subject subdivision, you don't need to use a radius search. Just make sure that there are at least a couple of good comps within a 1 mile radius that will "support" the value you have determined. As you probably already know, appraisers only care about the paycheck and cannot be trusted with providing accurate values. Plan to cover your bases, but always rely on same-subdivision values to determine how much you'll make on a flip, or how much equitable margin is provided on a hold.

2.) Know your value "identifiers".   Identifiers are market trends specific to the subject home that determine the value of the home. Identifiers are school systems, exterior factors such as railroad tracks, power lines in close proximity, new or old area retail developments that can affect value, construction styles, materials and amenities that are expected in a particular market area, number of days on market for area home sales, and more. If you're investing in an established neighborhood where the majority of homeowners are empty nesters, you'll know that the school system will not play a value factor. If you're investing in an area w/a top market value of $200K or less and you notice that the majority of updated home sales comps are homes that have laminate countertops in the kitchen, why would you budget an additional $2,000 for granite countertops?  If a new professional sports complex was just constructed in the neighborhood and n'hood values are now 10% higher than the year before while the average number of days on market for your comps has gone from 30 days to 15 days, you'll know that it's a hot market. Why would you risk losing out on a potentially great deal by dwelling on the lowest priced comp in the subdivision that sold 11 months prior as your value gauge in a hot market?  If you see that the contemporary/modern homes in the subject subdivision are selling on average $50,000 higher than the traditional builds, why would you risk losing out on a potentially great deal because contemporary homes just aren't your thing? If there is a big electrical tower behind the backyard of the subject home that can be seen from multiple angles, would you pay full market value to live in this home?  Know the identifiers in your market to determine what the area market buyers are looking for, the type of rehab that will be needed, the type of rehab that is NOT needed, what amenities are important to the market base, how long your home will sit on the retail market, & ultimately how much you stand to make on the deal.

Use these 2 guidelines and you will be able to assess accurate values each and every time!     

Thank you for your kind words James. I'm glad this info has been useful to you.

Lol..awesome!! The funny thing is that everyone is right! @JimKent - I know for a fact that the broker I used to work for currently has direct managerial access to HUD bids. But this broker is among the top 3 REO listing brokers in the southeast U.S. and he negotiates his listing contracts from a position of great strength. He's the best in the business & the Atlanta market has been among the top 5 most active default markets in the U.S. for 2 decades, so he can demand whatever access he wishes. Now, if he has direct access to bids I personally have to assume that other brokers do as well. Just common sense in my opinion. Everything is negotiable.

With that said, HUD is a government institution, and like most govt institutions their procedures are very strict & penalties are extremely stiff. The chances of "insider trading" with HUD home opportunities is highly unlikely as Greg H & Mark G expressed. However, preferential treatment and favoritism happens all of the time with bank and lender owned properties. And I actually agree with Mark Gallagher on this point: "You should consider getting on the inside". What I mean by that is, you need to establish good relationships with the listing agents that list REO's and distressed discounted properties. You can do a few ways: Follow these brokers on Facebook and find out if they're holding seminars or classes on REO purchasing and attend these classes - get to know them. If they organize luncheons attend them and establish a rapport. But the best way to get them to make recommendations and/or put you in a position to lead the pack is to successfully close a deal or 2 with them without issues or setbacks. Gain trust by following through on a deal or 2 without complications, and NEVER back out of a deal once you put it under contract. Once you pull out of a deal after you get it under contract the chances are that they'll remember your name on future offers and you wont stand a chance on picking up another through that broker. Do your due diligence and inspect properties before you submit the offer. Once you earn their trust you've earned a higher priority position when placing offers. This is how you can become the insider.

Thanks for your kind message @Kevin Hunter. Glad to be able to provide some useful information to the community. Good luck with your HUD deal!

@Mark Gallagher - No, that's not what I'm saying and yes, I agree that would be a total waste of time. I did not want to question your honesty. If you say that you don't have an inside track or access to bids that aren't your own, there's no reason for me not to believe you. But I get indicators and tips all the time! Come on! Agents tell me a lot of things without directly telling me a lot of things, what? They don't tell me bid amounts & I never ask for them, that's breaking the rules. A previous write up in this chain was from someone speaking to a Hud listing agent whom suggested he would need to be at a particular price point if his offer were to be considered. Perhaps it's different in many areas of the country, but the people here running Sage are the same people that ran Pemco & there's been no difference in the information I've been able to obtain over the past 12 months from the last 7 years. I don't mind being challenged & have conceded a few times to the knowledge of my good bud Greg H, but you said essentially that brokers having knowledge of Hud bids or being able to see bids is a common misconception, and I say that's no misconception. Degree of info & area specific? Perhaps, but if you're going to challenge one of my write ups as contrary to fact or misconceived I'm gonna call you out on it. I've been doing this for way too long & I know how this game works - I've played on both sides for years. I recommend that bidders should always approach any skillful & responsible conversation with the assumption that listing agents know what the buyer needs to know, and more times than not they do. Yes, even with Hud homes.

@Greg H - You've got the current Hud bidding experience and much of your write up is inarguable. However I disagree on a few things:

- Yes, certain things have changed but the majority hasn't changed. Sure, "under previous management it was but isn't anymore" applies in several instances within this chain I agree. But not in context with the majority of arguments & suggestions I've made. As much as we've disagreed, we haven't ever been too far apart.     

- The reason why listing brokers would not inform their investors and buyers of current offers and bid amounts is b/c it would most likely be a violation of their state or state board's fair practice laws & would constitute an extreme conflict of interest and possible breach of listing contract, if a listing broker tried to corner deals and not provide equal competition for all bidders. My advice to buyers was to try and engage a listing agent and ask questions that might gain insight and leverage, b/c the list agent most likely knows a lot more than you think. Certainly a lot more than they would ever gladly admit or reveal. 

- Yes, HUD has certain requirements that all listing agents must adhere to, but some list agents negotiate different assurances of turn around times, REO services provided that can offset marketing and vendor costs, streamlined process through HUD's approved closing attorney's, etc. The buying process is the same for all buyers & yes, there may be certain items in a listing contract that are non-negotiable across the board. But the agreements made between listing agents, Sage, and Hud are not all tailored the same believe me.

@Mark Gallagher

Come on, it's always "under previous asset managers it was, but isn't anymore". There's no misconception & not all Hud listing contracts are negotiated the same. You're an REO listing broker so naturally you don't want to hear anything that may remotely suggest a biased offering of info to the buyer, & that's cool. But I'm an investor agent & a buyer's agent that doesn't buy the idea that Hud has recently implemented a nationwide no-disclosure policy where listing agents are now kept completely in the dark through the most vital piece of the sales process that HUD once relied on for years. I'm gonna assume you do know & I'll pick your brain, gain your confidence, and you'll tell me what I want to know about the deal 8 out of 10 times. I'm gonna share strategies with the people on this site that will benefit the most from it, & investors want to know how they can compete & gain some much needed leverage in their purchase efforts. Picking up indicators during conversations w/ list agents/sellers and asking the right questions is the art of the deal.  

@Mark Gallagherundefined

Good deal, thanks Greg. However, gotta disagree with you on the selling agent not knowing the offers and amounts. Southern REO here in Atlanta has full managerial platform access to all bids submitted on their own Hud listings - seen them many times with my own eyes. Maybe not every listing agency has that access, but the company I used to work for certainly did.

Interesting. I've never heard of Hud reducing a list price by 5%. Their standards of practice are pretty much the same nationwide, but from what I'm learning there are some minor differences in various regions of the US. Since California is arguably the most judicially bound foreclosure state in the nation it makes sense that any departures of current HUD policies would originate in Cali.

Greg - ever seen this situation before?

     In regards to what the listing agent told you, she has the inside track on all the bids that have been submitted on the property thus far and is most likely giving you the type of advice that most agents wouldn't bother trying to obtain for their clients. She just gave you a big time heads-up, & by defining your chances by $2K-$3K she very well could have let you know exactly where you needed to be. Remember this: Any time you engage a seller in a conversation regarding a listing you're interested in bidding on, always pay careful attention to the things they say. Learn to distinguish when they say something literally and when they give you hints where you'll need to "read between the lines". What they reveal to you will always provide you with leverage in your negotiation.