I recently (like today) looked at time spent per deal. Then I looked at profit margin per deal. You know what I found? you know where I make the least amount of money and spend the most time on! You gussed it Foreclosure! Now I have been doing them for almost 10 years! from short sale, to bidding at the auction, to mailers, to knocking doors! So I am going to try something new here I am going to leave this very open ended! I want someone to tell me where I should focus my time! After I see some of the feedback I will tell you where I found the best deals and why!
Remember I am not doing this to be rude I just want this to be a thinking thing!
I too have spent a lot of time chasing preforeclosures in the past. I like REO’s. The last house I bought needed $60,000 in rehab and they owed $120,000 to the mortgage company and $12,000 in back property tax and only worth $153,000 after rehab. Can you visualize trying to contact this owner and making a deal. He was a truly motivated seller but so what. We bought the house for $24,000. I now have a few Realtors calling me that have REOs for sale before even listed on MLS or even a sign in the yard. Thus did not happen overnight but makes finding deals easier. When you can get deals chasing you that is the ultimate
Ted did not have to worry about that. He bought the property from the lender after they took it in foreclosure.
I, too, have been buying foreclosures since 1986. Though I am not as aggressive as REO, I would run across one or two VA or HUD foreclosures a year that I would try to pick up. Sometimes I was the winning bidder, sometimes not. The properties I did purchase turned out to be great cash flow properties.
Some I kept, some I didn’t. About seven months ago I got $153500 for property I paid HUD $49K for in 1999. I have noticed that ever since HUD and VA have gone to the professional contract management and marketing firms, the really good HUD/VA deals are few and far between. My last HUD purchase was in Jan 2003.
Today, I am buying new construction in new projects. I am trying to get the first property in the project under contract. If I can do that, then there is an opportunity to rent back to the builder for his model. After two or three years, when the builder does not need the property any more, and the builder has forced appreciation through periodic price increases, I hope to get out with a 40% profit per property should I choose to sell. I get to keep all the upgrades the builder has installed, making my resale just a little higher or a little more desirable.
Dave… I can see how your system work if you have a deep pocket. why a developer want to rent your unit as model where they can build one for far less than what it cost to rent from you? 2-3 years is a long time for flippers. or do you refin. them every year and trying to get the equity periodically?
I buy and hold for cash flow – I don’t flip as a rule. No, I don’t refinance – no need to with a positive cash flow.
The developer is willing to sell me the model and lease back because it clears some of his construction financing at whatever interest rate the builder is paying. Buying and leasing back to the builder is a new experience for me. I like the idea that the model unit appreciates, has no wear and tear from occupants, and has virtually no maintenance. If I choose to sell at the end of the builder’s lease, I will collect a nice profit on a virtually cost free property.
So. If I’m reading this right as a newbie my time is best spent finding REOs. I should concentrate my efforts on developing relationships with banks, and realtors. Then its just a matter of negotiating the price with the bank. No motivated sellers to find, no auctions. This really seems like the easiest way to get started and still hold down a full time job. Am I missing something?
Also does anyone know of a book or course on negotiating with banks for REO. I 've looked here on the site and I can’t seem to find anything unless I missed it?
I am not so sure that the REO market is the best use of your time. HUD and VA owned properties are generally listed at FMV and the seller has little incentive to negotiate. Even my local banks with available property are willing to hold and wait for a full price buyer, rather than discount for a quick sale.
If you insist on doing foreclosures, maybe you should concentrate on learning how to find motivated sellers who are in pre-foreclosure – perhaps take over the mortgage (Subject To), or purchase outright at a discount to loan balance (Short Sale). These are not easy niches to master, but may be well worth the effort when you get good at it.
Thanks for the reply.
No I don’t have to do foreclosures, I’m just trying to decide which it the best use of my time. My goal is to wholesale, then rehab. I’am just not sure the best way to find these propeties.
I don’t see why these banks are holding on to these trashed houses. Here in Dallas, Texas it is a buyers market and you see signs for sale everywhere. Why would a homebuyer pick the banks thrashed house discounted the same amount as the repairs than a nice house with no repairs for normal FMV?!?!?!
Typically the banks set a price out based on comps without knowing what the house condition is. Sometimes they have appraisers or someone go estimate damages and then they discount the house by that amount. Which is silly since if I was looking to buy a house to live in why pay for a house that I would have to wait till it was fixed and repaired to come out with no extra equity then just buying a house ready to go at FMV. Wierd! ???