All Forum Posts by: Huggy Baird

I purchased a home at an Ohio Cuyahoga County Sheriff's auction today for $46k. The comps are in the $110k area. The liens and taxes look good on the auditor and clerk of courts website. Nothing that wont clear up with this proceeding.

I have not bought a home at sheriff auction since 2003 and am rusty. For years I've been purchasing via MLS and FSBO. But given the heightened competition I'm branching out into auction to find deals this year... and it appears to be bearing some fruit as long as this home is not a complete train wreck when I finally get to see it.

My question since this is semi-new territory for me: Should I contact my title company and purchase title insurance? Or not spend that money (assume the risk) since rarely do liens show up later?

Are there any other suggestions?

This is sound thinking when the opportunity cost is greater than the closing costs and interest on the refi. I'd offer a couple thoughts Yaz should factor in:
1. Banks lend 70% ltv on the purchase price (not appraisal) if you held the deed less than 12 months. For your $30 home you'll only see $21k in a cash out refi.
2. It will take up to 30 days to get that $21k through underwriting. By that time you may have sold the home and be a week away from closing

The holiday's sting and I wrote a blog that quantifies exactly how much here:
http://www.biggerpockets.com/blogs/3600-quick-tip-profiting-from-seasonality

As you'll see, January sales are the lowest and typically come from November listings (assuming two months til closed). Simply waiting three months will on average lead to thousands of extra dollars if your property is cash flow positive (rehab's arent).

I wrote that article after being burned by seasonality. I had a home listed in Oct for $135k and the comps supported a price of $140. My expected profit was $26k assuming a sale close to list. I listed it lower than the comps to be extra competitive knowing the time of year was not the best.

We listed a week before Hurricane Sandy. No showings. DOM started ticking up.

Finally sold (closed last week) for a sale price of $121.5k and i netted $11k profit. Burns a little.

I listed another home in November for $145k (and the comps supported $160k) after seeing how badly the market received the last one. This one i sold within 1% of list ended up netting $22k in profit (also just closed last week) But i'm confident I would of made over $30k if i was listing in April.

For years, I've averaged higher sale price than the comps during the spring, and lower during the fall. Winter and summer i typically and spot on. That is what motivated me to write the blog and quantify it. Since I'm a rehab/flipper with 100% equity holding the extra three months is not really an option. In addition to the costs like taxes/ins/maint I lose the opportunity cost of using the money on another deal. passive income investors are in a different situation

J Scott, For four years, I've been the same one trick pony of the $15k to $40k rehab/flip. And it was a great run, but the future looks more uncertain

To deal with the increased competition, I've set a strategic objective to expand to multiple avenues including sheriff sales and finding local wholesalers. My challenge is finding Wholesalers doesn't seem to bear any fruit. I think in the Northeastern Ohio area wholesaling is less common. The only wholesalers I've seem appear to have homes in need of being bulldozed over with market comps in the $20k avenue. I've hunted around and left messages for the local wholesalers I found, but, oddly no one calls back. Also, other flippers I've seen from Cleveland on BP say they are predominantly MLS purchasers.

Is it possible wholesaling is just not a useful venue in certain regions? Is there another approach I should be taking to reach them?

Bought a home from a deceased elderly woman's heirs. In one dresser drawer was her donation receipts and appreciation letters to multiple charities. In the drawer beneath was quite the collection of sex toys. Most of the toys appeared to be from the 50's in the old timey packaging. I have a lot of respect for that charitable old woman for staying so spry

Oddly, that is the most complicated question I've ever seen asked here on BP. There are entire books of over 1000 pages written on portfolio management and asset allocation. You'll likely get some good opinions as other members here answer, but good golly it is a doozie of a question

I can tell you CFP and CFA certified/chartered individuals will require additional information including life goals, risk tolerance, age, human capital, lifestyle expenses, etc. They'd use this to set asset allocations to meet this.

I don't want to totally dodge the question, so I'll offer that typically the asset classes that other proclaim to be "recession proof" such as commodities (eg oil & gas, gold & silver) and money market/t-bill (loans under year) offer lower expected returns. On average, In 1 year or 1,000 years from now an ounce of gold will still be an ounce of gold and worth exactly what it is today. After taxes (remember taxes are based on nominal gains not real returns) you typically lose purchasing power/wealth

Short term speculators may rush into any asset thinking they know the future and the efficient market hypothesis is wrong. But, most sophisticated long term investors only allocate small portions (less than 5%) of their portfolio to these low (or negative) expected return assets in exchange for their diversification and downside risk benefits.

Now, multi-family housing and storage units are a little different. They are not only a commodity but also utilized to add value to society and offer a lot of the downside risk hedging while still offering some level of real return.

This is a bit cryptic and dodgy of an answer, but I hope it is at least of some help

literally last night just closed a conforming within the 90 day window. I accepted a lower offer because it was conventional to avoid this 90 day waiver not honored headache

During the summer I had Lorain national bank (small regional bank) refuse to honor the waiver. I sent them the waiver from fannies website and the underwriter was unaware of it. They did make an exception and approved the deal after learning of the waiver. The deal took forever though. And I doubt many banks would do what this little local bank did

Good luck. Please post back with the outcome

Jon Holdman Thanks for clarifying that PM is included in the 50% rule. Whoopsie, sorry for misguiding.

Hi Aaron,

The maintenance cost may be lower for the first 15 years inline with your hypothesis. But I'd caution maintenance is not a huge portion of the 50%. A good rule of thumb is 1% to 3% of home value goes to maintenance per year. So assume 2% on a $125k home and you'll have $208/month. Being new construction you may get away with 0.74% for the first 10 years saving you $130/month. Not too shabby, but it wont be a windfall. In this fake scenario, if you assume gross rent is 16k/year, the 50% rule would mean $8k would go towards costs. The $130/mo maintenance reduction would save you 1.5 of it (so 9%) leaving you with a 41% rule for the first 10 years.

I would suspect the prop taxes are higher on new construction if your area is like most. This will likely eat up some of that 9% expected savings.

I'd mention new construction typically costs more. This clearly depends on your area, but be cognizant of it. You may not see the same appreciation upside offsetting your total gain more than the reduced maintenance

The 50% rule does not include prop management. And 8% is a little low unless you have a large portfolio. You may want to ratchet up that expectation to 10%

Hope this helps

Bryan, brilliant reply. I could neither agree more nor have said it better.

David T, another thing to consider is there are different types of investment strategies. If you are a cash flow investor buying rentals in a war zone you could pay it off in a couple years. Of course you'll be losing wealth by making this mistake as Bryan pointed out. If you are an appreciation investor with an appetite for nice suburbs it will take 20+ years. And again you'd be losing wealth.

Good luck