I want to start buying again and so drove few areas and looked at some houses. I found 2 REO fixers where the bank is asking for $164-180K. Each is 3 bd. 2+ bath 1700+ sq. ft. they would need between $60-70K in rehab and upgrades. The agent says these will sell for about $250K. However, there are builder close outs and new homes selling for $280K range. These are larger, of course, and I would be competing with them. So here is my question: if I can get an offer accepted at $70K range and with rehab ($60K) and buying, holding, selling total cost of $170K put these on the market for $220K would these be safe numbers to work with? I am talking about S. CA and the marekt here is not so good. Or should I wait until next year? my exit strategy is to have buyers fully approved (using FHA & other programs) and ready to go before I even close these deals. Do these numbers make sense?
One of these houses had a $310,000 loan on it when it was taken back.
I would appreciate your opinions
If the prices are declining in your area, you have to factor that in when you purchase. It’s hard to know what the value will be when its completed. Is the agent YOUR agent or the seller’s? You’ll need to get an ARV from an accurate source. Once you get that #, you can back out your profit, rehab & holding costs, etc… to get a purchase price. If the market is declining badly, you may be forced to rent it out.
All depends on your marketing skills or how good a realtor you have. I would not try and rehab anything if I can not rehab and sell for at least 80% FMV and have a decent profit. Figure 6 months holdings cost, and do not forget things like closing cost, ins, taxes, utilities, lawn care, etc in your holding cost. Many investors overlook the little things that can add up to alot of money at times.
As for offers being accepted. Do not pay attention to what the bank paid for the home. They know market crashed. Just put your offers in and see what happens. Worse case is they say NO
I have two rules
Rule One: never buy a house where the same investor has sold three houses within the neighborhood within the last 6 months.
Rule two: Never buy in a subdivison that is not completely SOLD out by the builder.
Theres the wisdom you said you were after. nuf said ! Very sage. Thank you Michael.
Thank you very much for your insights and advise. I have been a lender for 20 years now and I have seen enough of the good and the bad. Our area market will change, hopefully sooner than we think because people are buying. So for now I’ll just focus on my buyer marketing. I love Michael’s rules!
thanks again!