This message is for investors in CA, NV or AZ. I am a licensed broker and certified appraiser. How many of you are profiting form investing in REO properties? I can honestly tell you that the myth the gurus are spreading around that you can purchase REO properties at 50-75% of after repairs value is just as much a myth and as rare as hitting the lottery in California specially. I am not talking about states like Kansas, Arkansas or other areas where I see investors posting that they picked up a foreclosure or short sale for $15,000 that was worth $40,000 and after rehab and closing costs they make $5,000-$10,000 after three months of time. Those numbers do not fly in most states.

In my experience and after submitting approximate 50 offers in March alone on REO inventory, the lenders after they acquire the property are not willing to sell at a great discount even after 100-200 days on market. They just gradually follow the market decline until the property sells to a owner occupant at 90-95% discount which for us investors is nothing. I mean think about it, once a lender acquires the property they have it listed with an agent, which most of the time lists the property at or close to market and reduces every 30 days a little to sell. If you were the bank, wouldn’t you want the maximum price attainable in the current market give or take 5-10%. I think you would have a better chance of purchasing below market if you concentrated on regular sellers since there is some desperation or emotion involved. Does anyone from Ca. agree or have a different experience?

Rick, I live in Sacramento and totally agree with you. Lenders might give up 10% but they are holding tight on values. I have been coaching my investor clients and partners to buy and hold with only flipping by carrying the paper…in other words, you have to have your own cash to get into this game. I am doing the same thing in the Midwest where you can pick up deals like you mentioned, the cash flows work out quite nicely. Again, you gotta have cash. You hit this right on. The gurus are selling information and they don’t tell you anything about title seasoning, unless you are paying them $20,000, but you just got that caveat here for free. How do you avoid title seasoning? Pay cash (your own) and offer seller financing on the flip side or lease option the property. If you have a buy and hold with cash flow strategy you will make a killing. Great post.


Jason, where in the Midwest are you buying and how much are you making per deal?

Things are shaping up a little differently in FLA. I am operating on the Treasure Coast and St. Lucie county has been hammered. The banks have been tough but are starting to soften up a bit. True they are holding the line on pretty houses but they are beginning to realize that end buyers are not flocking to the homes that need a good deal of work.

For a long time they would not acknowledge the fact that investors and investor pricing is the only way they would dispose of these properties. As more inventory hits the market certain lenders are pricing property to sell or are listening to realistic bids.

In fact, I have been trying to raise additional private funding to purchase more of these and offering participation to entice private investors to fund my deals.

I agree, Rick. Especially in CA. We’ve been stalking the market for a good “opportunity” for the past 4 months and the prices on REOs are just crazy. There was this one neighborhood in Glendale CA where one house was a short sale for $504K and 3 houses down was a similar house bank-owned listed for $577K!

In Las Vegas, it depends on the neighborhood. There is one hot location in North Las Vegas in a golf course gated community where a bank owned 2story is listed for $350 (this was sold by the builder for $785K). Yet, just down the street with more modest homes, there is a subdivision still selling builder inventory at $225K with REOs listed in the same subdiv for $185K.

Deal Hunter, it looks like we are looking for deals in the same areas. I live in Glendale and have invested many times in Vegas as well. How do see the Vegas Market Today?

Vegas is awesome right now. All our rent rates are up. We have offers out on a few short sales. Of course these take forever and we started out with really lowball offers, so we’ll see. Even if we go all the way up to $.70 on the dollar, with the rents, we still cash flow. The REO’s are not as good a deal, oddly enough. The starting prices are way high - for the market and the houses are stripped to the bone.

Of course population is still growing rapidly, so I don’t think we’ll have to wait too long in Vegas for a recovery. 100K new casino jobs by 2009. Lots of good renters coming!

Deal Hunter which part of North Vegas are you looking or investing in? In 2003-2005 I flipped 3 Centex pre-construction homes in N. Vegas, It was great back then.

I’ve never flipped anything. I’ve been buying rentals for 9 years. Right now the best are in the North end off 215 beltway and Losee or Pecos (there’s a VA hospital being built there and UNLV’s north campus). Also a new casino in Aliante Mater Planned community. You can get a SRF for less than $200K and rent it out for $1100-1400 per month.

Deal Hunter, thank you so much for sharing. In regards to buying in Vegas, Arizona or California to rent long term that is always a win win sitution as long as you can cashflow. A property worth 200k and brining rent of 1100-1300 is alwasy going to be negative for an investor. I am sure you know the 50% rule, now for newer construction I use the 25-30% rule. I on the other hand have numberous properties for rentals in Arizona, New Mexico and Colorado and not looking to acquire more. It is too early to start the buy and hold strategy in AZ, NV or CA since they are still depreciating. The idea of buy and hold works at its greatest when you start purchasing on the uptrent of the market, where you will be a landlord for 2-3 years only and make a killing at the end.

I am more interested to find out how anyone in Texas, Kansas or other midwest states is doing in flipping properties to generate immediate cash, any input would be appreciated.

Hey Marketing Master (or anyone that knows…) how do you structure an equity partnership deal? I’m still pretty Green and Just neg my first SS and working on others but i’d rather buy and hold. I want “true” wealth. Don’t care about my lifestyle as that will come later and am patient. From what i’ve read and researched (i am commited, lifelong student of wealth) I’m in Albuquerque, NM and there’s homes here that were selling for 210-215K and now are at 160K!!! (BTW this was only in 06’ they were selling for the 200’s) but my question is putting together a partnership. I’m licensed BTW (by the way) and would like to use my brains to raise money and buy properties and would like an ownership in this… So the million dollar question is…what is fair? 10% of a property for putting the deal together? For example let’s say i find 5 homes that are 20-30% below value, i’d like to raise the money, put it together and own 10% of everything. Is this fair do people do this? or is 20% ownershop stake better since i’ll be doing everything. Culling lists of properties, analyzing, etc… Help

Hi Rick, I’m buying in northern Illinois…you can pick up multifamilies there dirt cheap (some are listed for 30k, but you can pick them up for 15-20k) and rent for 500/door! If you pay cash or at least 50% down they cash flow and the yields are amazing…do the math…pay 20k free and clear (repairs included in 20k)… taxes are expensive (3% per year depending on the county may be more or less) so that’s another 600, plus insurance…so after you have your NOI of 6860 (12000 - 600 taxes - 600 insurance - 1,000 holding in reserve and calculate 70% occupancy) you have a 34% yield!!! What if you have it rented 100% the whole year - 49% yield…pretty damn good. When I can earn 30%+ on my money I see no need to flip, I get all my money back in a little over 2 years and still hold the asset!

Jason, I appreciate what you saying, I can get 25-35% returns too on any creative deals within AZ, NV or NM but I am not interested in getting my money back in 2-3 years, I am interested in generating alot of cash flipping immediately and I am interested in knowing flippers in states like Texas or Kansas and such what there strategy is and how much they are making.

Oh I see…well in any case, I agree with you. There are not that many deals in CA or most of the west coast that are flippable and I personally would avoid trying a flip in the Sacramento area unless I’m flipping and carrying the note. I flipped a couple last year where I ended up writing checks instead of cashing them…we are in a downward spiral here and with all the speculation that happened it’s not going to stop dropping for at least a couple years…my strategy as I said, buy and hold in the midwest…west coast is too crazy right now.

Yeah, I’m not a flipper. The 50%of gross income rule wasn’t around as an investing guideline when I started investing. However, I have a slightly different (old fashioned) method of RE investing. I try and pay off my mortgages. 4 of the properties I bought 9 years ago are mortgage free and I’m working on getting mortgage free for the rest of my rentals in 5-6 years. This might sound crazy to some, but my goal is to net $60-$70K per month in rental income by the time I retire. I’ve had some opportunities to flip in the past, but flipping doesn’t quite fit in with my goal.

I suppose you could still get a good couple of flips in Vegas. Some properties could be acquired at 30-40% below market. And since the rental market is so good, you could rent the property if you couldn’t flip it too soon. However, if flipping is what you are looking for, I’d wait to dip back into Vegas for at least another year. Perhaps the inventory will still be up there when these casinos and hospitals are completed and a flip may be more doable. We’ll have to wait and see how the inventory of unsold does this spring and summer.

Deal Hunter, just curious how do you pay off of your rentals in 8-9 years. Also, how is the shot sale market in Vegas? Can you get 70%- 75% of market value?

Deal Hunter - it’s nice to see another non-flipper around here! I think too much of the late night TV and gurus make everyone think they can become rich overnight flipping real estate. Nice to see another investor out there living in reality! As I always say, if it was that easy they wouldn’t be selling books, cd’s and bootcamps!


Every extra bit of income my spouse and I make from other business is put into principal. We do several things. First we always accelerate the mortgage by making the payments twice a month rather than once a month. Then we “try” to pay down the principal in at least one property by 10% each year. We’re licensed realtors and we made some big commissions in 2006, so we put most of that into the principals of our oldest rentals and were able to pay off the mortgages.

Short sales are better bets than REOs right now in Vegas IMO. We’ve started our offers at $.50 on the dollar. We have 3 offers that we started back in August of 2007! One just came back with a counter at $.70 on the dollar, but I think we’ll stick it out and see if they’ll meet us at $.64. The best ss I’ve personally done for another investor was $.60 on the dollar - this was just last month.

Yeah, for us it’s all about our exit strategy. We’re working hard now to establish a source of perpetual income for ourselves in our old age. The best way I’ve seen that accomplished is with good ole boring, non-sexy rentals. We actually tried doing a couple of flips in CA back in the day. After we spent the bare minimum to make the place presentable, we hesitated to sell because another property 5 houses down went up for sale and we didn’t want to compete with it. So we rented it immediately instead. We still have it to this day - paid in full - and giving us $1750 each month.

Deal Hunter, thank you for your input very much appreciated. We are looking for an experienced and honest broker in Las Vegas to bring and present offers on short sale properties at 65-70% of value. We have great success in purchasing short sale properties in Arizona and New Mexico at 70%-75% of market value and we would like to start doing the same acquisitions in Vegas. Can you recommend anyone? Thank you.