BiggerPockets

Flip REOs?

I've made offers on two REOs in two markets--SoCal and NE Ohio. In both markets it takes UP TO 6 MONTHS or longer to get an approval on an REO offer.

And if you don't have proof of funding, you won't even be able to make an offer. That means you need to have a pre-approved loan, or proof of CASH.

So how ya' gonna' flip it if it takes 6 months to get it approved?

The difference in the Ohio and SoCal markets? Very little competition in Ohio; way too much competition in SoCal. Competition runs the prices up to where REOs are no longer the real deal they could be. I had to go 15% above asking price in SoCal, but I was able to offer less than asking price in Ohio.

It's a seller's market in SoCal. One property down the street from my house in SoCal had 29 offers, which drove the price from $225k asking price to the final selling price of $280K. Granted, 280 is still below maket, but...

Word of warning: Most REOs that I've looked at require substantial rehab before they are ready for rent, let alone resale. Many REOs that were bought, rehabbed, and resold in my city took about 4-6 months to rehab and resell. And that's after waiting for the purchase approval.

You're better off in pre-foreclosures. Get Thomas J. Lucier's book "The Pre-Foreclosure Property Investor's Kit" and read it cover-to-cover, twice.

And forget about getting into the real estate investing business with little or no money. Unless you have an "instant" buyer when you make a "deal" you will need cash or the ability to borrow money to implement your deals.

Thanks for the input. Is it worth it to travel to other cities if I'm just starting out. I've been a spectator of the So. Cal. market for years and am familiar with quite a few neighborhoods. If I went to Ohio or almost any other state to avoid competition I'd have very little clue what I was be looking at. I know how to check comps and look at what local rents are but I'm a little wary being new to this.

If I were to invest in the Southern California area right now I would only do it with options or lease options. They have always been my favorite way to invest, especially in markets like these. Its a great way to start investing if you have little money or credit. I have a free report on the subject if you are interested. Let me know.

I also looked at investing in LA when I was living there. I just gave up because there is so much competition, with some very savvy investors, and as you say prices are high, and probably always will be. Rents, especially now with high vacancy rates and lowering rents, are not very attractive in terms of cap rates. You'd need another bubble to make me look again. Managing properties from afar is not impossible, even if you do it yourself.

Steve,

I completely agree with your comments.

We found a house that was listed for $110,000 that needed $15,000 in rehab.

We felt the ARV about $160,000 - $165,000.

When we called the listing agent, she told us that they had 4 ALL-CASH offers for $130,000 and up! (Sigh!)

The thing I am trying to work on for 2010 and above is to get these listings, REO or not, before they hit the market. That's the key.

If you're thinking about flipping in L.A. Area, Will Barnard from Mationwidepi is your man. If you are thinking about small amount of investment where no financing is required for good cash flow, I can hook you up with some good rental properties in Birmingham, AL. I'm flying there next week to look for properties for some of my investors, so I can find something for you if you are interested. Prices of properties range from $7,000 - $30,000 depend on the area, size and condition.