I found a great property. It is a REO 3bd/2ba home 1980 sqft. The selling price is 134,900 and the comp is 194,000. The house needs about 15-20k work into it. I am wondering if I can use this for my first wholesaling deal or would assigning it be better?
Also, my loan broker is telling me that a 3/1 ARM is the best loan for an investor? Is that true?
Also, my mentor told me to stay away from REO/bank owned properties because I will not be able to make any profits with it. How true is that?
Your mentor is right on this one. Let’s look at your numbers…
The house ARV’s at $194K, let’s say it’s a buyers market so we use $190,000
If you/ they buy it for $134,900 add in $20,000 to bring it to basically $155K
That leaves you with $35K profit or does it???
Back out the realtor commission of 6% or almost $12,000 and the profit is now $23K or is it???
How much did you pay in closing and holding costs. I know you want to wholesale it, but a wholesale buyer IS definitely going to look at these numbers. So let’s add in about $5000 worth of holding, closing, and budget overruns and now we have a profit of $18K.
Don’t forget Uncle SAM.
No wholesale buyer in the world is going near this deal in a falling market.
I also think you mentor is right on the money. Spend your time buying from private parties. You’ll do less deals but if your just starting out you don’t have the capital to buy 15 homes at once from a bank reo dept. Those guy’s get the real deals. Not the snipers. ( one shots)
Dont discount buying REO or bank foreclosures there is ALOT of money in them. I just purchased an REO that went into foreclosure for $92,000, comps out with an after rehab sales price of $100k, and I paid $12,500, and will probably put $12k-15k into it.
I don’t know who your mentor is and I am sure he/she means the best. When you are learing the investment business there is a very fine line between believing what others say, and finding out if what they are saying is true.
Try to be open to any deal that comes your way, I dont care what kind of deal it is. If you can make a reasonable amount of money on a deal then do it. By labeling or disregarding particular properties based soley on who they come from you stand a good chance of missing some awesome deals.
I always tell people to call me with everything that looks decent, I would much rather turn down 5 bad deals and find 1 good one, then to turn down none, and get none.
To rehab and sell figure 3 months if you are experienced and the market is good. The market isn’t good and you aren’t experienced. You’ll be at least 6 months or more to finish that and sell it. By then the market will have cooled even more and your holding costs will be even higher. Your ARV will go down due to the cooling market and your expenses will be higher due to the longer holding time. BUH BYE PROFIT, HELLO LOSS!
You can’t assign an REO - you would have to try to double close that.
If you can get the property for $115K or less - you might have a deal here, depending on your market. You need to have your comps nailed down. And know for sure what the repair costs are.
The trick is to have the property fixed up nice, and priced below comps to sell fast. That’s why you need an even lower purchase price.
You certainly can make money with REO properties, don’t let anyone tell you differently.
Thank you, since then, I found more deals that came my way. That house is not that negotiable, but I saw a 4 flat frame for 120k. Each apartment has two bedroom. It needs 10k fix up and rents out easily for $900 each apartment (3600 monthly). At market value is 200k, I got financing to buy it. I am going forward with this, but very scared. I don’t really care to do landlording, but if I don’t have a buyer, I dont want this deal to pass.
In this kind of a market with such a high foreclosure rates, I would think you could find a much better deal out there to put on your credit. It is so easy right now to find little “subject to” deals with little money out of pocket and you own it w/o using your credit.
In my opinion, if you’re going to purchase something, you can find deals at 65% or less everywhere! Buying with hard money, pull out a little cash and a rehab escrow. Fix the property up and then refinance (pulling more money out) Then do a lease option (again getting more money) As long as you have good credit this can be done w/o using any of your own money.
It’s a nice and stress free way of investing right now when “good credit retail buyers” seem to be scarce.