I did some research this morning to help some new investors I'm working with who are looking for fixer uppers on the MLS here in Sacramento. They were surprised to see how fast properties have been moving and the number of multiple offer scenarios, so I thought this would help.
In the last 6 months, there have been 175 homes sold on the MLS in Sacramento County with the word "fixer" in the property description. They sold for an average of 99.69% of the list price.
Of the 175 that sold, 98 of them went for 100% of asking price or above, with many going for 120-140% of asking price.
11 went for 80-90% of asking price, 5 were between 70-80%, and only 1 went below 70% at 67%. The rest were all between 90-100%.
THE MARKET RULES ALL
There is simply waaaaay too much demand for housing right now. Just about every transaction I'm involved in, whether I'm the listing agent or the selling agent, is a multiple offer scenario. The nature of multiple offers means competing for the property, which means higher final sales price.
So, taking the old standard of 70% of ARV minus your repairs simply isn't going to cut it in most cases. You'll be beat by a mile. This is why I'm telling people that if you want to find a deal you're going to need to put in the footwork to go and find something OFF the MLS.
Either that or you're going to need to do the repairs yourself or create some serious value-add to the property to make the numbers work.
You have to understand that by the time a real estate agent is involved in the transaction, you've now got someone who's practically brainwashed to sell the home for the highest price possible even when an all-cash quick close for a discount would be better for the seller. Plus, we have incentive to sell it for a higher price, because we get a higher commission if we do.
I know a guy who hired two people to watch the MLS for him 40 hrs a week and look at every single listing to try and find a deal. Know how many times he pulled the trigger in 3 months? Once.
And that was because the listing agent knew about us already and we gave him both sides of the commission when we bought and listed it with him when we sold!
The month after that, those people watching the MLS were let go, because there simply weren't enough deals. And this guy had flipped over a hundred homes so he wasn't no rookie either.
The reason he kept getting beat is because there are investors in Sacramento that have flipped over 400 homes, in this area!
I know one. She has her mother sitting at home making offers on the MLS all day long, and they've had over a decade to get their system down pat and find the cheapest quality labor possible. Her AC guy charged half the price ours did, and we were already getting a massive discount!
So that means she could come up a little higher on her bid and still make as much profit, all because she had her system down and her expenses were lower.
And so we lost. Time and time again on the MLS. We still flipped 1-2 homes per month, but you know where those leads came from? Direct mail.
He took his morning walk in a different neighborhood every morning, and any time he saw an "ugly house" he'd note the address in his phone. As soon as he got back to the house he'd drop a letter in the mail offering to buy their home. Send enough targeted mail, and eventually you'll find a deal.
With all the TV shows like Flip This House, Fixer Upper, My First Flip, etc. everybody and their momma thinks they can flip a home now, so you've got tons of rookies coming into the market and overpaying for properties too. So that's another reason the percentages are so high.
There's a flip like this right around the corner from me, and they WAY overpriced the home when they listed it too. Been on the market 32 days and already had to reduce the price once. But now it's stale, and they've easily lost $10-20k in profit for their error. Too bad, so sad.
I don't want to crush anyone's dreams, but you've got to be realistic. Deals are out there, but it's a seller's market and so there's already a ton of demand for housing. So don't think that dreamy lowball offer at 50% of ask is ever going to happen. It won't. Not on the MLS at least.
And that's because once it's on the MLS everyone else already knows about it...
The 400 home flipper with lower expenses, the knowledgeable contractor who can do the work himself and always has free extra materials laying around from other jobs, and the young couple who wants to remodel the home over the next few years to really "make it their own."
All of these buyers can pay more than you and win.
So keep looking on the MLS if you like, but the investor who spends 40 hours a week looking on the MLS and the investors who spends 40 hours a week looking OFF the MLS at things situations like vacant homes, out-of-state owners, preforeclosures, divorces, bankruptcies, direct mail, etc. will be world's apart in finances and investing success 5 years from now. Just saying :-)
