better way to find houses than bank REO's

I want to flip a house (I’m the investor, sister is realtor) - joint workers with some help from the spouses!! I’ve been focusing all my efforts and analysis on REO’s. But in reading through back posts, it sounds like maybe this isn’t the best route. I’m sort of chicken to pull the trigger because my husband keeps saying we don’t have money to lose!! I’ve done the whole business plan, income/expenses analysis, etc…

Should I just stick with my current method of finding foreclosed homes in good locations for under $80,00 which I can fix and sell for $100 (I hope), or is there something else I should be doing?

Advice or a kick in the pants to get me going would be appreciated? My first pick of a house sold this morning, so I’m feeling like maybe a let something slip away…

I’m a new flipper as well and my only advice would be not to limit yourself to REO’s. Put your sister to work. There should be plenty of great deals out there.

If your new I would not recommend your current strategy of buying at 80k fixing and selling for 100k unless your 100% sure of rehab, holding, misc costs. The last deal I did was bought at 40k did some rehab about 15k and wholesaled at 85k, FMV was about 110k. In this slower market its very important I think to have enough spread in the deal to be able to sell at a significant amount less than the comps in the area.

I completely agree with Johhnnywit on the discount to buy at. Buying a house for 80% of ARV is normally not a good idea. When you factor in holding costs, closing costs, advertizing/commission costs, estimated repair costs, and unforseen repair costs, you will have a nice little hobby that makes you no money.

Now not all markets are slower like johnny’s, but if yours is then his advice on buying at an even greater discount is excellent advice, too.

Buying at 70% of ARV minus repairs is a good standard for a normal market. For a stronger market maybe 75% or even 80% for a HIGHLY appreciating area, and in a slower market 65% or even 55-60%. Remember those percentages are BEFORE you subtract repairs.

In reference to finding houses only through one avenue (REO’s), I would highly recommend having multiple marketing strategies for finding houses. I utilize probably over 20 different ways of finding houses, REO’s being one of them. Giving yourself a selection of deals is always the best way to go, and if you are utilizing only one method you are limiting your selection. Now keep looking for REO’s but develop some other methods also.

I am in a very slow market right now and buying could be very dangerous if you dont know what your doing, but I’m loving it. When you say good locations, does that mean theres bad locations? Bad locations pay super. Why, because most investors like yourself dont want to buy there. The nice part about bad locations is that the homes are so cheap, that while your waiting to sell you can cashflow like crazy with tenants. My last bad location homes have been like this

paid 26k, repairs 5k, rented $675, sold for $62k
paid 38k, repairs 5k, rented $1000 (2 unit) sold for $62k
paid 33k, repairs 5k, rented $675, sold for $62k
paid 30k, repairs 12k, rented $675, sold for $62k
paid 30k, repairs 10k, rented $675k, sold it for $62k
Total paid $157, Repairs $37k, Sold $319k Gross Profit $125k

These are all homes that anyone could have bought, but they were in the “bad areas”.

Im beginning to think that “good areas” might be “bad areas” for the wallet.

The neat part with bad area homes is you spend 40k to make 20k, not spend 100k to make 15k. Look at the cash on cash returns.

Good area= 15000/100000 =15% cash on cash return,

Bad area= 20000/40000= 50% cash on cash return

Good area rents $800 on $100,000 home .08% return on Rent
Bad area $675 on a $40,000 home 1.6% return on rent

But wait, your thinking bad area bad tenants, good area good tenants, right?

Wrong. Bad tenants are bad tenants ANYWHERE, good tenants are good tenants ANYWHERE.

Eric Medemar