Does anyone buy new (or relatively new)?

Bird Dogs, Wholesaling
1

There is a property in the development over from mine that is relatively new - 5 years max - a townhouse that has been vacant on a lockbox. I am trying to get information on the property; my question is does anyone ever buy new or relatively decent properties? Everything I’ve read seems to point to the ugly fixer-upper in order to maximize profits, but I’m thinking there might be some motivation here (someone is paying 2 mortgages) to take a discount. Even if it’s a “just” 5 or 10K profit, would it be worth it?

Any advice regarding this subject - should REinvestors look only at the ugly or foreclosed - or should we consider every type of property in a decent area as long as the seller is motivated?

Thanks for the advice,
IMMY

2

I bought a HUD foreclosure this year for 90% list and 75% ARV with <$1k in repairs. It was build in 2002. I admit ugly homes in the 10 or 15+ year range are probably better cash cows, but hey … :wink:

3

Hi, thanks for replying!
I’m a little confused on your numbers - did you buy for 90% of the list price or 75% of the after-repaired value? Sounds like you made some easy money with less than 1K in repairs! Was it (profit) worth the holding costs, etc. to do it?

Do you finance directly with HUD - I’m just now reading about HUD properties and don’t know where the $ comes from there (govt vs. private lenders vs. banks) - or did you have the cash to pay for it yourself?

Thanks!
IMMY

4

No, HUD does not finance any investor loans. You have to either have the cash or have financing in place to purchase from HUD.

I’m sure NMD will reply, but just to get your answer quicker: he bought the property at 90% of what they were asking and 75% of what it was worth after $1K in fixup work.

There are many investors that prefer to work with what they call “pretty houses.” That is, houses that are 5 years old or newer in most cases.

Whether or not this is a profitable route for you will greatly depend on what method of investing you are trying to do. Also consider what is profit. If you’re making a true $5-10K profit (you’ve considered ALL of the costs associated with the buy/sell of the property), then you’ve done pretty good, right? Well, that depends. At least to me, it does.

The amount of time it takes to make that $10K is important. If you’re figuring on making it in 4 months or less, what happens to that “profit” if you have to hold the property for 6-12 months?

There is a pretty houses market, but you really have to know what you’re doing to be profitable in it.

Raj

5

mommy,
This is a great question. From my perspective, the answer is very complicated. Do you buy and hold, flip, or do a combo of both? I have done well holding and flipping homes less than 5 years old in the Midwest. Be very careful to consider the dynamics within the neighborhood. Quite often, I will pass on very attractive bank owned properties in newer neighborhoods. My stategy is almost always to hold these properties. I don’t want to be competing with the builder in neighborhoods where there is new construction. On the other hand, if I do a rent to own and have a high vacancy, pricing for a quick sale could get bloody. For this reason, I always look for strong equity positions in these properties. I like having many options and 70% LTV and less gives me this. I know many investors will disagree with me, but I NEVER look at deals I’m buying to flip or hold with less than $30k equity. After Repair Value less purchase price.

-housebroken

6

Hi Housebroken,

Read your comment and could not understand it much. I live in Columbus, OH and would like to try out some of what you have mentioned.

Will appreciate if you could elaborate a little bit more on your comment

Sunny

7

Hi Sunny,

Columbus is a good market. Similar to Indianapolis. On the subject of buying newer homes, I take a very hard look at the neighborhood. Personally, I don’t like rehabbing to flip a property in a newer neighborhood. In most cases, but not all, the home would be competing with new construction and potentially a number of bank owned homes. Do you see the challenge here? I bought a HUD home Monday that was built in 2003. I have estimated the cost to rehab at $10,000. The after repair value is $106,000. I will have a tenant pay me $750 a month with an option to buy for $106,000. It will be a two year lease and I will get $1,600 down. After rehab, there will be roughly $33,000 equity in this home. The rehab will take 4 days. Even though this home is 2 years old it has no HVAC, no interior doors, no water heater, no top kitchen cabs, no garage door opener, needs 3 windows repaired, no appliances, and I will paint the interior and do some minor landscaping. Since the condition of this newer home was so poor, I knew it would scare many investors away. It’s a great buy! If my strategy was to buy and flip, I probably wouldn’t have bought this home.

-H

8

Thanks for the details Housebroken

Q on your statement “If my strategy was to buy and flip, I probably wouldn’t have bought this home”.

Q: Are you saying that you could not flip it for 106K after repair?

Also some more Q’s

  1. I got following description from Glossary at REICLUB but still could not understand what is HUD foreclosure?
    Housing and Urban Development (HUD) - a federal government agency established to implement certain federal housing and community development programs.

  2. New Proposal :-\

Here is something I had in mind, would love to get you Guys opinion on it.

In Columbus market, appreciations are in the range of 3 to 10% depending on the area, so I am not sure how much investing in New Construction and resell will get me. Seems like there is lot of construction going on though, especially in the suburbs where I live (Powell). Hottest market is obviously 200 to 350K price range for homes.

In Powell (Powell was listed 18th best place to live in US in recent report by money magazine, see link http://money.cnn.com/best/bplive/snapshots/30262.html), homes are pricier and bigger, new builds in price of 500K to 800K are going up a lot. School system is among most desirable and crime rate is very low.

Now, someone wanting to buy a home in 500 to 800 price bracket generally have lot of buyers wanting to build a semi custom home using may be a small custom home builder or so. Obviously, they can always buy from the builder’s plan but if someone wants to buy a lot of his own to build on it the way he would want to then lots in newly developed communities are just very scarce. Land developers also discourage selling lots to individual owners as they do not want one or two lots sitting vacant when everybody has built on the lots. People camp out in front of developers office at 3:00 AM in the morning to get a lot. Some developers are doing lottery system now to allot the lots.

No Guarantee that anyone will get a lot. You put down a deposit of 10,000 and then wait for the allotment day. If you do not get lucky then all you loose is interest on 10K for 2-3 months.

Having said that, I still have not been able to pull out enough data or history on if this has worked for anyone in the past as an investment. From the look of it though, if I wanted to build a home of 500K and above in a good neighborhood and could find a lot which is may be someone is selling at 30K profit or so after a year or so of the neighborhood started, I would buy it as component of extra money (30K on 500K is small). BTW average cost of lot from developer depending on the size and location is 120 to 200K.

Let me know what you think. Worst case scenario, I don’t think that I will loose any money in it and I can test the waters in a couple of months to year’s time frame.

9

Housebroken,

What was your winning bid on this HUD home…if you don’t mind me asking.

Thanks,
-Mike